Option Investor

Daily Newsletter, Thursday, 1/29/2015

Table of Contents

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

Market Wrap

The Day After

by Thomas Hughes

Click here to email Thomas Hughes
The indices "patiently" bounced back from yesterday's FOMC inspired swoon.


The market bounced back from yesterday's FOMC inspired swoon as earnings, corporate news and economic outlook helped to lift stocks. On the earnings front a number of big names including Boeing helped to lift stocks before the bell. This has also lifted the number of companies beating the mean estimate to near 80% and growing. In corporate news, a surprise changing of the guard at McDonald's has investors cheering. Don Thompson, who has been CEO for only a few years, is stepping down, the news sending shares of the stock soaring. In terms of outlook a several factors contributed included earnings, the FOMC and economic data.

Market Statistics

Global markets did not fare as well as we today. Asian indices fell the most, losing more than 1% on average in a move echoing yesterday's drop. The bearish vibe held over into the European session where markets were mostly lower in early trading. Those market also opened lower, but were able to recover most if not all of the losses before the close.

Our markets were mixed in the early pre-market session. Futures were up, but compared to fair value indicated an opening near to flat. The Dow was the notable exception as it was positively affected by trading in both McDonald's and Boeing. Index futures lifted mildly at 8:30AM, just after a surprise drop in jobless claims was announced, and managed to hold into the open. After the bell the indices held positive territory for a few minutes, and then quickly fell until the selling began to let up just after 11AM. From that point forward the market perked up, the bulls came out and pushed the indices back to break even and into the green. Once they had their heads back above water the bulls were able to drive the indices up by nearly 1% on average.

Economic Calendar

The Economy

Only two economic releases today, jobless claims and pending home sales. Jobless claims was much better than expected and is the first sign that seasonal employment shifts are working their way out of the system. Initial claims was reported as dropping 43,000 to 265,000. This is much better than the expectation for them to remain flat. Claims are now at their lowest levels, on an adjusted revised and updated basis, in nearly 15 years. Last week's figure was revised up by 1,000, the 4 week moving average declined by over 6,000 and is back below 300K. I am now going to suggest that jobs creation in January may be strong-ish when released next week and that unemployment may have fallen again. On a state by state basis no state or territory reported an increase in claims more than 1,000. Several states, includin PA, NY and GA, reported drops in claims greater than 10,000.

Continuing claims and total claims both fell as well, adding some weight to the idea seasonally expected lay-off's and job losses are not a lingering problem. Continuing claims fell by 71,000 to 2.385 million from an upward revision of 13,000. This is not a new low but is back below the 2.4 million level and in line with the ongoing improvement in labor we have been monitoring.

Total claims fell by 87,774 to 2.961 million. This is still elevated but off of the high set last week. If initial and continuing claims remain low I expect to see this one continue to fall and return to recent lows. On a comparable basis, the total number of Americans is 17% lower than last year at this time.

Pending home sales was released at 10AM. Pending sales is a measure of contract signings and is a gauge of traffic as well as future sales. The index declined by 3.7%, to 100.7, versus an expected increase near a half percent. While bad on the headline, details within the report are a little better. The December number, while in decline, is still above the comparable period in the previous year and is the fourth month to be above last years rate. On a year over year basis pending sales are up more than 6% in 2014. The December drop was attributed to a rise in prices/low inventory and could lead to an increase in home building.

On tap tomorrow is the first estimate for 4th quarter GDP as well as Michigan Sentiment, Chicago PMI and the Employment Cost Index. GDP is expected to be in the range of 3.2%, this is down from 3.5% last week on weak durable goods orders reported earlier this week. While durables may be a drag on GDP, I am not betting on a weak number as other data in the quarter was positive. Chicago PMI and Michigan Sentiment are both expected to show a mild decline but remain firmly expansionary.

The Oil Index

Oil trading was …. volatile, again. The price of WTI fell more than 2% after yesterday's stockpile report showed that supplies are not diminishing. Then, mid day, prices found bottom and were marched back to break even and higher. WTI closed with a small gain today, .25%, with Brent achieving a gain of more than 1%. This is a possible sign of bottoming in oil prices but I don't think so, not yet. Prices have been in steady decline on high capacity, high storage and low demand growth with no sign of a change to any of these.

The Oil Index traded down on the news but was able to recover the loss. The index moved lower after an initial opening just above yesterday's close. Today's action tested support along the back side of the broken down-trend line near it's intersection along the rising up-trend line. This could become a significant juncture for the index and give indication of where it may trade over the next few months. Support is currently near 1,250. A bounce from here could take the index back to 1,350 or 1,400, a break could lead to further selling and a continuation of the short term down trend.

The Gold Index

Gold prices had their worst day in over a year. The FOMC statements, while supporting economic trends, were also a little dovish in terms of interest rate hikes and spooked gold bulls. The use of the word “patient” has the market speculating on the possibility of the hike coming in September, rather than in June was widely expected. In any event, gold prices fell by 2.5% in today's session as traders re-think their positions. This new twist pushes the first rate hike out a little bit it does not take it away so I am looking at today's decline as more of a lead-in to new bullish positions rather than a sign the bear market is coming back. Tomorrow's GDP could be change that but that is for tomorrows Wrap.

The gold miners ETF GDX fell in today's session as well. The ETF 2.25% right at the open and then traded around that point all day. Today's range was tight and created a small bodied candle just above support targets near $20.50. The indicators are in decline, consistent with a market in retreat, but also consistent with a retest of the recent highs over the short term. It looks like the sector is pulling back on the drop in gold prices and is heading for a test of support. Support is near $20.50, the top of the Nov/Dec bottoming pattern and the short term 30 day moving average with an initial upside target near $23 should support hold. A drop below this level could take the ETF down to $17.50.

In The News, Story Stocks and Earnings

Earnings are flooding the market. This week and today being one of the busiest of the season. Ford reported before the bell and provided mixed results for investors to ponder. Revenues were a little light but EPS was in line and 2015 guidance is positive.The auto maker reported that sales were down from the previous quarter but remain strong. Shares of the stock gained nearly 2.75% today after testing support at $14.50.

After hours action was full today. Several top names reported, including Google, Amazon and Visa. Google reported a big miss on the top and bottom lines. EPS came in at $6.88, versus $7.11 expected by analysts. The EPS miss was due in part to spending over the quarter and sent the stock tanking in the after hours market. Shares of Google fell more than 2% on the news.

Amazon reported that revenue was light but earnings were much better than expected. The compnay reported EPS of $0.45, versus the expected $0.17, and proves that Amazon can make some money, a little. Shares of the stock surged more than 6.5% in the after hours session despite weak first quarter guidance.

Visa was another company to shine in the after hours session. The credit card and payment processor reported a top and bottom line beat and 4-for-1 stock split that sent shares surging 4%. The results are an 11% improvement over the comparable period and a sign of strength in the consumer.

The Indices

The market moved higher today, after an early head fake that made it appear as if a more pronounced sell-off may ensue. Heavy selling did not ensue and the bulls were able to regain the upper hand, at least for today. The Dow Jones Industrial Average was today's leader. The blue chip index gained 1.31% in a move that tested long term support in the early hours and approached potential resistance in the later ones. The index created a white bodied candle that moved up from support near 17,150 and is now approaching the potential resistance of the short term moving average. The index bounced from the bottom of a three month range with indicators consistent with support at that level. In the near term it looks like the index could continue to test support, especially if the GDP is not to the markets liking, but that the long term trend is still intact.

The NASDAQ Composite is runner up in today's action. The tech heavy index gained 0.98%, driven largely by Apple which gained 3.25%. This index also tested support, consistent with the September all time high and the long term up trend line. Today's action created a long white bodied candle with a short lower wick and appears to be bouncing from the trend line. Today's action also brought the index up to just below the short term moving average which may provide resistance. A break above it will lead to a target near the current long term high, about 120 points above today's closing price.The indicators are weak in the near term and suggest that further testing of support may come but over the short to long term are consistent with support. This yet another bounce along the trend line and set up for a potential trend following market swing.

The S&P 500 is next up in today's lineup with a gain of 0.95%. The broad market created a white bodied candle moving up from the long term trend line with a long lower shadow. The lower shadow helps to highlight support along the trend line which is supported by the indicators and support lines drawn to the August/September highs. The index appears to be bouncing from the trend line, as it has done in the past, but is faced with technical resistance at the short term moving average and a potential fundamental resistance in the form of tomorrow's GDP announcement. Support is in the range between 1990 and 2010, a zone consistent with the highs of July, August and September and three previous tests of support in December and January. A fall below this level could lead to a more significant correction a possible market reversal.

The Dow Jones Transportation Average brings up the rear today. The transports gained only 0.6%, less then half of its blue chip counterpart. Today's action created a white bodied candle with a lower shadow and indication of ongoing support at or near 8,750. The index has been trending sideways over the past three months and now is trading near the bottom of that range. The indicators are consistent with support along this level but also suggest that it could continue to be tested if no catalyst spurs the market higher.

I thought the FOMC meeting would be a bigger, or different, catalyst for the market but there is still the GDP release to watch for. The market is continuing to test support along the long term trend/suppot and may continue to do so until a firmer view of the future emerges. For now, the economic trends are still up despite a slowing of activity in December. The positive is that the early January data is pointing to a pick up of activity with the start of the year and December was still a growth month, just a slightly slower one. The thing to remember is that all of the forward looking surveys of business and the consumer, that I have seen anyway, are at high levels and pointing to a continuation of growth this year. The GDP figures could go a long way toward helping the market realize that, or not. If not there is always next week to look to and the next round of monthly ADP, NFP and Unemployment data.

There will also be a lot of activity centered around earnings. Earnings reports are still mixed, if leaning toward the positive side, and there were quite a few big names making big moves in the after hours market. There will also be about 45 reports tomorrow including MasterCard and Chevron.

Until then, remember the trend!

Thomas Hughes

New Option Plays

Managing Expectations

by James Brown

Click here to email James Brown


Williams-Sonoma Inc. - WSM - close: 80.78 change: +1.01

Stop Loss: 77.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 990 thousand
Entry on January -- at $---.--
Listed on January 29, 2015
Time Frame: Exit PRIOR to earnings in March
New Positions: Yes, see below

Company Description

Why We Like It:
Normally when a company lowers their earnings guidance Wall Street tends to punish the stock price. WSM has lowered guidance several times but that didn't stop shares for outperforming the market with a +29% gain in 2014.

The company describes itself as "Williams-Sonoma, Inc. is a specialty retailer of high-quality products for the home. These products, representing eight distinct merchandise strategies – Williams-Sonoma, Pottery Barn, Pottery Barn Kids, West Elm, PBteen, Williams-Sonoma Home, Rejuvenation, and Mark and Graham – are marketed through e-commerce websites, direct mail catalogs and 603 stores. Williams-Sonoma, Inc. currently operates in the United States, Canada, Australia and the United Kingdom, offers international shipping to customers worldwide, and has unaffiliated franchisees that operate stores in the Middle East and the Philippines."

They have an enviable position of mostly selling to high-end customers who make more than $150,000 a year. Unlike many retailers, WSM has an extremely healthy online presence. Their e-commerce business generated half of all sales, which certainly gives their margins a boost compared to rivals.

WSM seems to have perfected the beat estimates and guide lower game to management Wall Street's earnings expectations. Looking at the last four earnings reports in a row WSM has beaten estimates three out of the last four reports on both the top and bottom line. Every time management has guided lower for the next quarter. This strategy has definitely generated some volatility in the stock price. A quick look at WSM's daily chart and you'll see a lot of big gaps up and down as investors react to news. Yet the overall trend has been higher. Today WSM sits at all-time highs.

Shares have been showing relative strength in 2015 with a +5.4% gain thus far. The point & figure chart is bullish and forecasting a long-term target at $105.00. Tonight I am suggesting a trigger to buy calls at $81.15. Please note that I am suggesting small positions to start. WSM is flirting with and apparently breaking out past a long-term trend line that you can see on the monthly chart below.

Trigger @ $81.15 *start with small positions*

- Suggested Positions -

Buy the MAR $85 CALL (WSM150320C85) current ask $1.75

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

Daily Chart:

Monthly Chart:

In Play Updates and Reviews

Stocks Rebound Thanks To Bounce In Oil

by James Brown

Click here to email James Brown

Editor's Note:

After hitting six-year lows yesterday, a minor bounce in oil helped change investor sentiment today. Some decent earnings headlines also contributed to the bullish tone on Thursday.

IBM hit our entry trigger and then reversed to hit our stop loss.

Current Portfolio:

CALL Play Updates

Alkermes plc. - ALKS - close: 72.19 change: +0.79

Stop Loss: 66.85
Target(s): To Be Determined
Current Option Gain/Loss: +109.7%
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

01/29/15: Traders bought the dip at $70.44 this morning. It looks like $70.00 and its 10-dma continue to provide short-term support for ALKS. The stock rebounded to a +1.1% gain and another closing high.

I am not suggesting new positions.

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

01/24/15 new stop @ 66.85
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

Avago Technologies - AVGO - close: 106.53 change: +1.53

Stop Loss: 101.40
Target(s): To Be Determined
Current Option Gain/Loss: -28.0%
Average Daily Volume = 2.2 million
Entry on January 28 at $107.75
Listed on January 24, 2015
Time Frame: Exit PRIOR to earnings in late February
New Positions: see below

01/29/15: AVGO continues to churn sideways in a volatile range. The range was about $100 to $107. Now it appears to be $102 is short-term support and $107.50 is overhead resistance. The stock dipped to $102.27 before bouncing back to a +1.45% gain today. I am suggesting readers wait for a new rally past $107.75 or even a more past $108 before considering new bullish positions.

Earlier Comments: January 24, 2015:
AVGO is in the technology sector. They are part of the semiconductor industry. They make chips that speed up mobile phones while reducing interference. According to company marketing materials, "Avago Technologies is a leading designer, developer and global supplier of a broad range of analog, digital, mixed signal and optoelectronics components and subsystems with a focus in III-V compound semiconductor design and processing. Backed by an extensive portfolio of intellectual property, Avago products serve four primary target markets: wireless communications, wired infrastructure, enterprise storage, and industrial and other."

AVGO is probably best known as a part supplier to Apple Inc. (AAPL). AAPL's huge success with the iPhone 6 and 6+ has been a blessing for AVGO. Earnings and revenue growth is seeing significant moment. The last few reports have all come in above expectations with revenues up +25% in the second quarter, +100% in the third quarter, and up +115.4% year over year in AVGO's fourth quarter (last October). Earnings growth surged +58% quarter over quarter and up +123% from a year ago. Gross margins also improved quarter over quarter and rose from 51% a year ago to 58% in their most recent quarter. Management then raised their guidance for Q1 2015.

Following their December 3rd, 2014 earnings report several Wall Street analysts raised their price targets on AVGO into the $115-122 range. The point & figure chart is even more positive with a forecast of $127.00.

The stock was showing strength again on Friday with a +1.7% gain. AVGO appears to have short-term resistance near $107.50. Tonight we are suggesting a trigger to buy calls at $107.75. I do want to caution investors that AVGO could be heavily influenced by AAPL's earnings report. AAPL reports earnings this coming Tuesday (Jan. 27th, after the closing bell). If AAPL somehow disappoints it could negatively impact shares of AVGO.

- Suggested Positions -

Long MAR $110 CALL (AVGO150320C110) entry $4.86

01/28/15 triggered @ 107.75
Option Format: symbol-year-month-day-call-strike

Acuity Brands, Inc. - AYI - close: 151.92 change: +0.24

Stop Loss: 149.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 365 thousand
Entry on January -- at $---.--
Listed on January 26, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

01/29/15: I am starting to worry about AYI as a bullish candidate. Shares did find support near the $150.00 level midday. Yet the stock did not really participate in what was a widespread rally in the stock market.

Earlier Comments: January 26, 2015:
AYI is part of the technology sector. The company has managed to deliver double-digit sales and earnings growth in six out of the last seven quarters.

Who are they? "Acuity Brands, Inc. is a North American market leader and one of the world's leading providers of lighting solutions for both indoor and outdoor applications. With fiscal year 2014 net sales of $2.4 billion, Acuity Brands employs approximately 7,000 associates and is headquartered in Atlanta, Georgia with operations throughout North America, and in Europe and Asia. The Company's lighting solutions are sold under various brands." (source: company press release)

The last couple of earnings reports have been healthy. Back in October AYI beat Wall Street's estimates on both the top and bottom line with revenues rising +15.3%. Their most recent report was January 9, 2015. Earnings rose +38% from a year ago to $1.32 a share, which was above expectations. Revenues rose +12.7% to $647.4 million, also above expectations.

AYI's President Vernon Nagel commented on the quarter saying, "We were extremely pleased with our record fiscal 2015 first quarter results. Gross profit margin of 42.2 percent increased 90 basis points over prior year's first quarter, while adjusted operating profit margin of 14.9 percent increased 230 basis points over last year's first quarter adjusted operating profit margin. Our variable contribution margin, i.e., the incremental adjusted operating profit as a percentage of the increase in net sales, was over 33 percent. We believe our record first quarter results reflect our ability to provide customers truly differentiated value from our industry-leading portfolio of innovative lighting and control solutions along with superior service."

AYI also discussed their outlook and Mr. Nagel said, "We remain very bullish about our prospects for continued future profitable growth. Third-party forecasts as well as key leading indicators suggest that the growth rate for the North American lighting market, which includes renovation and retrofit activity, will be in the mid-to-upper single digit range for fiscal 2015 with expectations that overall demand in our end markets will continue to experience solid growth over the next several years. Our order rates through the month of December reflect this favorable trend. Further, we expect to continue to outperform the growth rates of the markets we serve due to benefits from growing renovation and tenant improvement projects, further expansion in underpenetrated geographies and channels, and growth from the introduction of new products and lighting solutions."

At least two analysts have already upgraded their price targets on AYI following the January earnings report.

Technically shares have spent the last couple of weeks digesting gains after its big, post-earnings pop to new highs. Now the stock looks poised to begin its next leg higher. There is short-term resistance near the $155.50-156.00 area. Tonight I'm suggesting a trigger to buy calls at $156.05.

Trigger @ $156.05

- Suggested Positions -

Buy the MAR $160 CALL (AYI150320C160)

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

Big Lots Inc. - BIG - close: 46.80 change: +0.70

Stop Loss: 43.90
Target(s): To Be Determined
Current Option Gain/Loss: -1.8%
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

01/29/15: BIG found support where it should have, in the $46 region. Shares managed to recover about half of yesterday's profit taking. The $48.00 level remains overhead resistance. I'm not suggesting new positions at this time.

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

01/28/15 new stop @ 43.90
01/15/15 triggered @ 45.75
Option Format: symbol-year-month-day-call-strike

Cracker Barrel Old Country Store - CBRL - cls: 137.55 chg: +3.03

Stop Loss: 129.75
Target(s): To Be Determined
Current Option Gain/Loss: +14.0%
Average Daily Volume = 248 thousand
Entry on January 26 at $135.15
Listed on January 22, 2015
Time Frame: Exit prior to earnings in late February
New Positions: see below

01/29/15: CBRL displayed relative strength on Thursday. The stock held support near $134 and then rallied to a +2.2% gain and a new two-week high. Today's move could be used as a new bullish entry point.

Earlier Comments: January 22, 2015:
The falling price of gasoline in the U.S. is a significant tailwind for the restaurant industry. AAA said the price of gas has fallen 119 days in a row with the national average down to $2.04 a gallon. Looking in the rearview mirror we can see how it affected the restaurant industry.

According to TDn2K's Black Box Intelligence data restaurants saw their same-store sales grow +3.1% in December, the fastest pace in three years. The fourth quarter of 2014 delivered the fastest same-store sales growth in the last six years. Another industry analyst believes that having more money in their pocket from low gas prices means that consumers are willing to trade up from fast-food to more traditional dining options.

One firm that should benefit is CBRL. According to the company, "Cracker Barrel Old Country Store, Inc. provides a friendly home-away-from home in its old country stores and restaurants. Guests are cared for like family while relaxing and enjoying real home-style food and shopping that’s surprisingly unique, genuinely fun and reminiscent of America's country heritage … all at a fair price. Cracker Barrel Old Country Store, Inc. (CBRL) was established in 1969 in Lebanon, Tennessee and operates 634 company-owned locations in 42 states." Another detail that makes CBRL unique is that 85% of the company's locations are at Interstate highway exits (likely near a gas station).

Earnings last year were decent. The company has developed a trend of beating Wall Street's estimates and then guiding lower. Management has either been super cautious on guidance or they're trying to manage expectations. Their most recent earnings report was November 25th. CBRL earnings were up +16% to $1.42 a share. That beat estimates of $1.29. Revenues came in at $683 million, above the $665 million estimate. CBRL said their same-store sales surged +3.3%, which was above the industry average.

Once again CBRL management lowered their immediate quarter guidance but this time they did raise guidance for FY2015.

Looking ahead the restaurant industry should see easy comparisons to January and February last year since much of the country was blanketed by winter storms. On the other hand several states raised their minimum wage, which began on January 1st this year so that has the potential to impact restaurant industry margins.

Technically shares of CBRL have just performed a 38.2% Fibonacci retracement from their recent high. This bounce might be an entry point. However, I want to see CBRL break through some short-term resistance. Tonight I'm suggesting a trigger to buy calls at $135.15. We will plan on exiting prior to the company's earnings report in late February.

- Suggested Positions -

Long MAR $140 CALL (CBRL150320C140) entry $2.72

01/26/15 triggered @ 135.15
Option Format: symbol-year-month-day-call-strike

Lowe's Companies - LOW - close: 69.93 change: +0.71

Stop Loss: 65.75
Target(s): To Be Determined
Current Option Gain/Loss: -10.0%
Average Daily Volume = 5.3 million
Entry on January 28 at $70.60
Listed on January 27, 2015
Time Frame: Exit PRIOR to earnings on Feb. 25th
New Positions: see below

01/29/15: LOW did not see any follow through on yesterday's potential bearish reversal signal. Traders bought the dip near short-term support at its 10-dma and LOW bounced back to a +1.0% gain. I am still suggesting investors wait for a new rally past $70.50 before initiating new bullish positions.

Earlier Comments: January 27, 2015:
Lowe's Companies is a Fortune 100 company. They sell to 15 million customers a week with annual sales of more than $53 billion. LOW is the second biggest player in the home improvement retail business. Their main rival is Home Depot. LOW currently has more than 1,800 stores across the United States, Canada, and Mexico.

The stock has been a great performer the last couple of years, significantly outperforming the broader market. Their most recent earnings report was November 19th and results were one cent above expectations with a profit of $0.59 a share. Revenues also beat expectations with +5.6% growth to $13.68 billion. Same-store sales were up +5.1%.

Management issued bullish guidance for 2015 and raised their earnings estimate above Wall Street's forecast. LOW also raised their revenue guidance above analysts' estimates. The company expects revenues to grow +4.5% to 5% in 2015 with same-store sales growth in the +3.5% to 4% range.

The stock is often influenced by trading and news out of the homebuilders. This year there have been a couple of bombs in the homebuilding industry with both KBH and LEN warning on potential margin pressures in 2015. Shares of LOW, a retailer, shrugged off this headlines.

The U.S. economy grew +4.9% in the third quarter last year and is expected to grow about +3% in 2015. The slow and steady improvement in the U.S. economy is a tailwind for LOW. Another bonus is low gas prices. While we have not seen a lot of evidence that consumers are spending their savings at the pump eventually that money, amounting to hundreds of dollars a year for the average driver, will be spent. Americans love to spend money on their homes, which is bullish for LOW.

We are quickly approaching the spring residential real estate selling season. That means consumers will be spending money on fixing up their homes to go on the market. Those people who buy a home will spend money on their new purchase.

Technically LOW's stock has been consolidating sideways between support near $65 and resistance near $70 the last few weeks. The point & figure chart has already produced a new triple-top breakout buy signal with a $75 target (that could grow). Yesterday the stock hit an intraday high of $70.50. Tonight I am suggesting a trigger to buy calls if LOW hits $70.60.

- Suggested Positions -

Long MAR $70 CALL (LOW150320C70) entry @ 2.71

01/28/15 triggered @ 70.60
Option Format: symbol-year-month-day-call-strike

Monster Beverage Corp. - MNST - close: 120.77 change: +1.56

Stop Loss: 115.75
Target(s): To Be Determined
Current Option Gain/Loss: -15.6%
Average Daily Volume = 1.1 million
Entry on January 23 at $120.25
Listed on January 17, 2015
Time Frame: Exit PRIOR to earnings in late February
New Positions: see below

01/29/15: Traders were buying the dip near $119.00 in MNST today. Shares eventually rallied to a +1.3% gain and a new all-time closing high. I would consider new bullish positions at current levels.

Earlier Comments: January 17, 2015:
Shares of MNST have been extremely effervescent. Last year the NASDAQ composite rallied +13.4%. Yet MNST soared +59% in 2014. Thus far in 2015 the NASDAQ is down -2.1% while MNST is up +9.7%. The stock looks poised for more gains.

The company's market material describes MNST as, "Based in Corona, California, Monster Beverage Corporation is a holding company and conducts no operating business except through its consolidated subsidiaries. The Company's subsidiaries market and distribute energy drinks and alternative beverages including Monster Energy® brand energy drinks, Monster Energy Extra Strength Nitrous Technology® brand energy drinks, Java Monster® brand non-carbonated coffee + energy drinks, M3® Monster Energy® Super Concentrate energy drinks, Monster Rehab® non-carbonated energy drinks with electrolytes, Muscle Monster® Energy Shakes, Übermonster® energy drinks, and Peace Tea® iced teas, as well as Hansen's® natural sodas, apple juice and juice blends, multi-vitamin juices, Junior Juice® beverages, Blue Sky® beverages, Hubert's® Lemonades and PRE® Probiotic drinks."

A big part of last year's gains in MNST came in August. On August 15th, 2014 it was announced that Coca-Cola (KO) was buying a 16.7% stake in MNST. This is part of a long-term strategic partnership to conquer the energy drink category. This generated a +20% pop in shares of MNST and the stock has been in rally mode ever since.

Earnings have been mediocre. MNST has beaten Wall Street's bottom line earnings estimate the last three quarters in a row. Yet they also missed analysts' revenue estimates those same three quarters. Revenue growth has actually been slowing down. Their Q4 2013 revenues grew +14.7% while their Q3 2014 revenue growth was down to +7.7%. Investors don't seem to care.

There has been a lot of analyst action on this name with both upgrades and downgrades in the last several weeks. So far the upgrades are outnumbering the downgrades. This past week saw Cowen upgrade MNST and give it a $140 price target.

The bears are that MNST will suffer from stronger competition from Red Bull, their main rival. They've been rival for years, so what's going to change? There is the valuation argument that MNST is too expensive with the stock trading at 36 times earnings.

Bulls can argue that MNST will see stronger growth when they make the switch to KO's global distribution system. Right now international sales only make up 22% of MNST's total revenues and MNST only has 5% of the international energy drink market. That compares to 37% of the energy drink market in the U.S. By joining KO's distribution platform it's going to give MNST a lot more exposure overseas, especially in Latin America and China. Currently MNST has zero exposure in China. There is speculation that MNST could double its market shares internationally pretty quickly.

Another bonus for MNST is the consumer spending situation in the United States. About 70% of MNST's sales come from convenience stores and gas stations. The massive drop in gasoline prices is very bullish for MNST since consumers will have more money in their pocket after filling up.

At a recent investor meeting MNST said that sales growth in the energy drink category had "re-accelerated" after three consecutive quarters of slowing sales growth (not declines, just slower growth).

There is speculation that MNST might be able to raise prices in the U.S. since their rival, Red Bull, recently raised their prices. There is also the relationship with KO as the company could up its stake in MNST to 25%. Of course they could outright buy MNST too.

The point & figure chart for MNST is bullish and forecasting a long-term $155.00 target. We are not setting a target tonight. The plan will be to exit prior to earnings in late February. The $120.00 level might be round-number resistance so we are suggesting a trigger to buy calls at $120.25.

- Suggested Positions -

Long MAR $125 CALL (MNST150320C125) entry $4.50

01/23/15 triggered @ 120.25
Option Format: symbol-year-month-day-call-strike

Constellation Brands - STZ - close: 111.78 change: +1.49

Stop Loss: 104.85
Target(s): To Be Determined
Current Option Gain/Loss: +21.5%
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

01/29/15: STZ ricocheted off support near $110 again. Shares are once again poised to breakout past resistance near $112.00. A rally past this week's high near $112.50 could be used as a new entry point.

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

Valeant Pharmaceuticals - VRX - close: 161.51 change: +0.92

Stop Loss: 154.80
Target(s): To Be Determined
Current Option Gain/Loss: -18.8%
Average Daily Volume = 2.5 million
Entry on January 26 at $160.55
Listed on January 24, 2015
Time Frame: Exit PRIOR to earnings in late February
New Positions: see below

01/29/15: VRX found support at its rising 10-dma this morning. Today's rebound back above $160 looks like a new entry point to buy calls.

Earlier Comments: January 24, 2015:
Healthcare stocks have been some of the market's best performers in 2015. VRX is helping lead the group higher with a +11.5% gain already.

The company's website says, "Valeant Pharmaceuticals International, Inc. is a multinational specialty pharmaceutical company that develops and markets prescription and non-prescription pharmaceutical products that make a meaningful difference in patients' lives. The company's growth strategy is to acquire, develop and commercialize new products through strategic partnerships, and strategically expand its pipeline by adding new compounds or products through product or company acquisitions. Headquartered in Laval, Quebec, Valeant has approximately 17,000 employees worldwide and is listed on both the New York Stock and Toronto Stock Exchanges under the symbol VRX."

VRX made a lot of headlines last year with its attempted hostile takeover of Allergan (AGN). Eventually VRX lost out to a rival. AGN agreed to a takeout by Actavis (ACT) for $219 a share, which was more than VRX wanted to pay.

Meanwhile VRX has been doing just fine on the earnings front. The company is developing a trend of beating analyst estimates. Plus they guided higher in April 2014, in September and with their last earnings report on October 20th. In November VRX's Board of Directors announced at $2 billion stock buyback program.

This year VRX has already raised guidance again. They see Q4 results above Wall Street estimates. They also raised their guidance for FY2015 into the $10.10-10.40 range compared to consensus estimates near $10.01.

The stock has been surging with a rally to new all-time highs. The point & figure chart is bullish and forecasting at $180.00 target.

Currently VRX sits just below round-number resistance at $160.00. We are suggesting a trigger to buy calls on a breakout at $160.55.

- Suggested Positions -

Long MAR $170 CALL (VRX150320C170) entry $4.80

01/26/15 triggered @ 160.55
Option Format: symbol-year-month-day-call-strike

Whole Foods Market, Inc. - WFM - close: 53.00 change: +0.30

Stop Loss: 49.45
Target(s): To Be Determined
Current Option Gain/Loss: +67.4%
Average Daily Volume = 4.9 million
Entry on January 08 at $50.35
Listed on January 07, 2015
Time Frame: Exit PRIOR to earnings on February 11th
New Positions: see below

01/29/15: WFM dipped toward its January 22nd low near $52.00 before bouncing today. Shares lagged behind the broader market and only gained +0.5% versus the S&P 500's +0.95% gain.

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

01/28/15 new stop @ 49.45
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: 83.67 change: -0.51

Stop Loss: 81.35
Target(s): To Be Determined
Current Option Gain/Loss: -23.5%
Average Daily Volume = 494 thousand
Entry on January 12 at $80.85
Listed on January 10, 2015
Time Frame: Exit prior to earnings on February 26th
New Positions: see below

01/29/15: Hmm... ZBRA struggled today. Shares dipped lower this morning like most of the market. The stock found support near $82. ZBRA also pared its losses but failed to make it back into positive territory. The $84.00 level is once again short-term overhead resistance.

I am not suggesting new positions at the moment.

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

01/28/15 new stop @ 81.35
01/12/15 triggered @ 80.85
Option Format: symbol-year-month-day-call-strike

PUT Play Updates

Starwood Hotels & Resorts - HOT - close: 73.58 change: +0.96

Stop Loss: 75.05
Target(s): To Be Determined
Current Option Gain/Loss: -44.4%
Average Daily Volume = 2.3 million
Entry on January 14 at $73.90
Listed on January 12, 2014
Time Frame: Exit PRIOR to earnings on February 10th
New Positions: see below

01/29/15: Shares of HOT also followed the market higher. The stock displayed relative strength with a +1.3% gain. Relative strength is not what we want to see in our bearish candidates. Tonight we'll try and reduce our risk by moving the stop loss down to $75.05. I am not suggesting new positions at this time.

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

01/29/15 new stop @ 75.05
01/14/15 triggered @ 73.90
Option Format: symbol-year-month-day-call-strike


International Business Machine - IBM - close: 155.48 chg: +3.93

Stop Loss: 155.15
Target(s): To Be Determined
Current Option Gain/Loss: -50.5%
Average Daily Volume = 5.1 million
Entry on January 29 at $149.75
Listed on January 28, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

01/29/15: Wow! Today produced quite a reversal in shares of IBM. Unfortunately the stock market's early morning decline was enough to push IBM to a new relative low. IBM broke down below support near $150.00, hit our entry trigger to buy puts at $149.75, and almost immediately rebounded. The market's widespread bounce fueled a big rally in IBM. Shares rushed past recent resistance in the $154.00 area and hit our stop at $155.15 by the closing bell. Put it altogether and IBM has created a bullish engulfing candlestick reversal pattern. Now it just needs to see confirmation (to the upside).

- Suggested Positions -

Long MAR $145 PUT (IBM150320P145) entry $2.85 exit $1.41 (-50.5%)

01/29/15 stopped out at $155.15
01/29/15 triggered @ 149.75
Option Format: symbol-year-month-day-call-strike