Option Investor

Daily Newsletter, Saturday, 2/7/2015

Table of Contents

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

Market Wrap

Jekyll & Hyde Market

by Jim Brown

Click here to email Jim Brown

After declining more than -500 points the prior week the Dow rebounded +659 points despite some profit taking ahead of the weekend. This was the best weekly gain since December 2011 and pushed the Dow into positive territory for the year.

Market Statistics

I am surprised there was not a bigger decline on Friday with the Dow and S&P running into heavy resistance and the potential for destructive headlines over the weekend. With ISIS, Greece, Venezuela. Russia and Ukraine all fighting for headline space investors appeared unconcerned. A -60 point decline in the Dow was noise rather than a real market indicator.

The biggest headline for the day was of course the Nonfarm Payrolls. The headline number showed a gain of +257,000 jobs in January. This was well over the consensus estimates of +235,000. In addition the November and December numbers were revised higher by a total of +147,000 jobs. December rose from 252,000 to 329,000 and November rose from 353,000 to 423,000. It was the best 3-month job gain in 17 years. These are huge numbers suggesting the job market may be accelerating rapidly. It also means the chance of a Fed rate hike in June just became a lot stronger.

The BLS also published their revisions for all of 2014 but despite upward monthly revisions as high as +70,000 and downward revisions as large as -40,000 the total revision from January through October was a net of only +17,000 jobs. That is the smallest I can remember in recent years and basically a rounding error.

The unemployment rate for January rose slightly from 5.6% to 5.7% because a whopping 703,000 people rejoined the workforce and the separate Household Survey showed a gain of +435,000 jobs. These numbers are dramatic and completely trashed analyst comments about the potential for slowing job growth in January and the impact of the layoffs in the energy sector. Sources claim more than 30,000 layoffs in the energy sector in the last 90 days.

Lastly the average hourly earnings rocketed higher by +0.5% after the minimum wage hikes in more than a dozen states took effect January 1st. That is the biggest single month increase since November 2009. It was equaled in July 2011 but you have to go back to 2009 and the rebound out of the recession to see a higher number.

Analysts blamed mild January weather in most of the country for the strong increase in jobs relative to the harsh conditions in the prior January. However, the gains were broad based not just in outdoor jobs like construction. Retail posted a gain of +46,000 jobs and that is not specifically weather related. Mild weather may have brought more consumers into stores but retailers should have been laying off seasonal workers in mid January after the gift return cycle slowed. Apparently many of them retained some of those employees.

The education/healthcare sector saw job gains of +46,000 as a result of the implementation of the Affordable Care Act. Employment in the insurance sector also rose as a result of the ACA. You can expect growth in the finance/accounting field over the next several months as a result of the tax preparation changes required by the ACA.

The unemployment rate for teenagers rose to 18.8%. The other major categories were mostly unchanged with adult males 5.3%, adult women 5.1%, whites 4.9%, blacks 10.3%, Asians 4.0% and Hispanics 6.7%. The U6 rate of all unemployed and under employed rose from 11.2% to 11.3%. The number of workers forced to take part time jobs because full time was not available rose +20,000 to 6.81 million.

While January employment reports are very volatile because of the seasonal adjustments for holiday workers we should not lose sight of the fact that the average job gains over the last three months is now +336,300. That is a very large number and a dramatic change from earlier in the year. This raises the odds of a Fed rate hike in the near future.

Analysts who were pushing their expectations farther out into the future like Morgan Stanley projecting Q1-2016 are now faced with having to retract those estimates earlier into 2015. The consensus had been September-November but with the sudden appearance of the strong jobs and wage growth those were being pulled backwards to the June meeting once again.

The FOMC does not meet again until mid March but Janet Yellen will give her annual congressional testimony on February 24th. That may be the first indication we get of her new intentions.

Currently the word "patient" in the FOMC post meeting statement means the Fed will not hike rates for at least two meetings. Once that word is removed it will give the Fed the option but not the compulsion to raise rates at any time.

This sudden change in the outlook for employment was not lost on the bond market. The yield on the ten-year treasury jumped +6.8% on Friday alone to 1.94%. For the week the yield on the ten-year rose from a low of 1.65% to 1.94% or roughly +29 basis points in only five days. This represents an 18% spike in only one week. This is titanic and suggests the tide has turned and assuming the economy does not take a sudden downturn the low yields are now behind us.

The economic calendar for next week is lackluster with no reports that are likely to be market moving. The retail sales for January on Thursday would be the only one that could be a potential speed bump if it comes in significantly lower than expected. The -0.9% decline in December is expected to rebound to +0.3% in January.

Yelp (YELP) had a bad day on Friday despite beating earnings Thursday evening. The company reported better than expected earnings and raised guidance but only showed user growth of +13%. That was below expectations. The company was downgraded by Pacific Crest, Northland Securities and B. Riley & Co. BR analyst Sameet Sinha cut his rating from buy to sell and said the stock no longer deserves a premium multiple because growth prospects have changed. He cut his projected multiple from 7 times to 4 times. He said Google is stealing traffic and Yelp will have to pay more for page views in the future.

Pacific Crest said local advertising account growth, the clients that advertise on Yelp, declined to 54%, down from 84% in the year ago quarter. Yelp plans to boost its sales force by 40% to offset this decline in new accounts.

Shares declined -21% to $45.

DeVry Education (DV) better go back to school after reporting earnings of 75 cents that missed estimates for 78 cents. Revenue of $484.9 million was also below estimates of $487 million. They opened multiple locations in the USA and made two acquisitions in Brazil. The CEO said they were continuing to see growth in students but they were still facing challenges. One of them will be to rescue their stock price from a new 52-week low after earnings.

Buffalo Wild Wings (BWLD) reported earnings of $1.07 that missed estimates for $1.09. However, revenue of $4.08 million beat expectations for $4.05 million. The stock soared with a +7% gain after the company bragged on some new offerings and upbeat guidance. They are introducing a new lunch menu in April with "variety, value and speed," all the things lunch guests want. They will also add wraps or sandwiches that can be eaten on the go rather than take the time to dine in. All restaurants will have tablets at the table to allow ordering and payment to reduce wait time. Investors must have liked the plan to give BWLD shares a $13 boost.

Linkedin (LNKD) shares gained +11% after the company reported earnings Thursday evening. Earnings rose +56% to 61 cents and beating estimates of 53 cents. Revenue rose +44% to $643 million, also a beat. Membership rose +15 million to 347 million. Multiple analysts raised their price targets saying everything LNKD was doing was working. JP Morgan hiked the target from $253 to $300. RBC Capital from $245 to $300. Cowen & Co from $260 to $290. Canaccord Genuity from $240 to $285. Credit Suisse upped from $285 to $331. While LNKD gave cautious guidance analysts said ignore it. They always give cautious guidance.

Twitter (TWTR) shares rose +16% after reporting earnings on Thursday evening. This was amazing since the company reported mediocre subscriber growth of only 4 million users. They originally blamed it on a glitch in iOS 8 software in Apple phones that launched in the quarter. On Friday they retracted that excuse. In a tweet the company said it was not Apple's problem. It was a bug in Twitter's software.

The company guided for Q1 for a revenue midpoint of $445 million and consensus is for $450 million. They guided for earnings of $89-$94 million and also slightly below estimates. Twitter confirmed they had signed a deal with Google to integrate its tweets in real time into Google's search results. This is an effort to monetize the 200+ million logged off Twitter users that visit Twitter profiles each month. The new integration of video messaging is also expected to give the service a boost in 2015.

GoPro (GPRO) did a face plant after issuing weaker than expected guidance for Q1. The company is expecting 16 cents on revenue of $335 million compared to estimates for 17 cents and $325 million. That may not seem like a big miss but there were complicating issues. COO Nina Richardson unexpectedly resigned to "pursue other opportunities." Investors don't like unexpected departures. She had a block of 25,000 shares that were a signing bonus when she took the job in Feb 2013 and she had to remain employed for 24 months to vest. That could have had something to do with the timing of her resignation. She also had options on 450,000 shares that would vest 25% per year on Feb 2014, Feb 2015, etc so she gets half of those as well.

There are also 76.1 million shares that will become available for trading when the lockup expires on February 17th. There are only 127.77 million shares outstanding and 76.1 million will become available for trade on the 17th. Nearly 14% of the outstanding shares are currently held by institutions. The average daily volume is 7.4 million shares. The potential is very high for a major decline in the share price when those shares come out of lockup. Insiders holding those shares have seen them decline from $95 to $47 over the last four months. The odds are good they are going to want to cash "some" of them out before the price falls further.

GoPro reported earnings of 99 cents, up +200% from the year ago quarter, and well over the 70 cents analysts expected. Revenue of $634 million crushed estimates for $580 million. They shipped 2.4 million cameras compared to estimates for 1.95 million. That was roughly 1,000 units an hour for the entire quarter.

GoPro has a PE of 115 and competitors are showing up every month. They have a great product and a loyal customer base but their time as a high dollar stock may be over. If GPRO shares decline under the post IPO consolidation support at $38 we could see a wholesale dumping of the remaining shares as the PE compresses to something more reasonable.

The earnings calendar for next week is starting to slow. Nearly 70% of the S&P have reported earnings and the rest will be spread out over the next four weeks. So far 65% have beaten on earnings with 10% meeting estimates and 17% missing estimates. The earnings have not been the challenge but as always the guidance is the key. Unfortunately guidance has been ugly. However, we have reached the point where the "strong dollar" excuse is now a get out of jail free card because everybody with overseas sales has used it. Investors expect it and they are not holding the companies accountable for weak guidance because of the dollar.

The highlights for next week are Tesla, Cisco Systems, Whole Foods, Panera and FireEye on Wednesday. AIG, Cabellas and Kraft report on Thursday and Red Robin on Friday. It is not a very big list.


I am pretty sure that everyone will agree with me that a +624 point Dow gain for the week is excessive even though it declined -507 the prior week. Large market swings are symptoms of indecision and uncertainty. Shorts are squeezed on the unexpected rebounds and longs are crushed by the declines. This is what makes a market. It is our job to survive the volatility until the market picks a direction that lasts.

The S&P has spent all of 2015 wandering between about 1,985 and 2,064. It has made six trips across that range and Friday's high was the high for the year at 2,072 but it did not hold only to drop back to 2,055 at the close. Quite a few analysts believe we are due for another trip back to the 1,985 level. Fortunately the more that believe that theory the less likely it is to come to pass.

After Friday's payroll report we are facing a new problem. The stronger employment makes it more likely the Fed will hike rates in June. While that is still months away that cloud will linger over the market until it happens. Historically the first Fed rate hike causes a -5% dip in the market. Once that occurs the market tends to move higher from there because the Fed is hiking rates because the economy is doing better. Since the market is so tuned into the Fed communication today more than any point in the past this market hiccup could occur at any point from now until June.

The better than expected earnings are a positive for the market but the worse than expected guidance is a negative. If the market declines on the negative guidance then we are less likely to decline again in June if the Fed hikes rates. The key inflection point today is the Yellen testimony on Feb 24th. She will likely drop some clues as to what the Fed is planning when she testifies before Congress. Unfortunately the 24th is a long way off in market time. We could see the Dow move a couple thousand points before the 24th if it decides to go directional. That sounds like a lot but remember the Dow has moved over 500 points in each of the last two weeks.

Rather than concern ourselves about the distant future we only need to worry about the week ahead. The S&P has given us a clear range and a deviation from that range in either direction is a trading indicator. If the S&P moves over 2,064 it would be a buy signal with 2,073 and 2,093 the next resistance points. If it moves below 1,985 it would be a sell signal with 1,972 a potential support point. It we did break 1,985 on the next dip I fear there would be a bigger dip in our future.

The 150-day moving average is still in play at 1,999 but it was broken intraday last week.

The Dow volatility should calm down in the week ahead because the majority of the Dow components have already reported earnings. That means the sudden gaps higher or lower should give way to less dramatic movement. However, we do have Coke (KO) on Tuesday and Cisco Systems (CSCO) on Wednesday. Both are low dollar stocks and should not cause any serious post earnings volatility unless they really surprise on earnings. For instance if CSCO posted ugly results and dropped -10% (-$2.75) that would only equate to about -20 Dow points and hardly a material impact. A similar 10% move on KO ($4.10) would equate to about -28 Dow points. Neither of those stocks have a recent history of 10% or greater post earnings moves. Coke came close in October with a $2.70 move but Cisco rarely moves over $1 in a gap open.

If the Dow volatility calms then "investors" as opposed to "traders" will begin to reenter the market. Investors are waiting for the market to either begin moving higher at a measured pace or crash back to some level where they feel the risk of new positions is justified. During the January volatility they were simply waiting on the sidelines.

Resistance is now 17,915 with support, 17,500 and 17,375 at the 100-day.

The Nasdaq Composite outperformed the Nasdaq 100 last week with the big caps struggling to move past the resistance from early January. The composite index benefitted from small cap earnings that had no dollar exposure. The composite came very close to retesting the strong resistance at 4,800 with Friday's spike to 4,787.

The Nasdaq 100 barely exceeded the 4,250 resistance level from early January and fell back to 4,228 at Friday's close. The big caps are struggling but the composite index is the one the market watches. If it reaches and exceeds that 4,800 level next week it could drag the broader market higher.

Composite resistance 4,774, support 4,600.

Nasdaq 100 resistance 4,250 and downtrend resistance at 4,285. Support 4,100.

The small cap Russell 2000 is suddenly the most bullish chart. The Russell closed right at 1,209 on Thursday and only gave back -3 points on Friday. Because of their lack of dollar exposure the small caps could return as the market leader with a breakout over that 1,208 resistance and the historic high at 1,219. That would really fire up the market and create a directional market.

In the weekly chart below the Russell has been consolidating since early 2014. Louise Yamada coined the phrase "the longer the base the higher in space." If the Russell breaks out it could lead us higher, headlines permitting.

On the negative side the Dow Transports are not cooperating. We are on the verge of another lower high if the transports roll over next week. Support has been solid at 8,575 but with oil prices rising again and the government talking about doubling the tax on gasoline and diesel the transport rally may be over. Since the transports theoretically confirm Dow rallies and declines the weak transports suggest trouble ahead.

Oil is looking toppy after it's nearly $9 rebound from the prior Thursday's low of $43.58. That is a +20% gain in 7 days. While I expect oil to go higher long term I believe the rebound was overdone and we could see some backing and filling to something in the $47-$48 level before moving higher. Declining oil will mean declining energy stocks and the potential for a weak equity market.

However, there are still a lot of shorts in the oil market so any slow creep higher could trigger another round of short covering and energy stocks could lead the market higher. Oil inventories should continue to rise because we are moving into the maintenance season for refiners where oil consumption declines. Also slowing oil consumption is a strike by workers at multiple oil refineries. Late Saturday the union expanded the strike to add two BP refineries in the Midwest. This is the first nationwide strike since 1980. The addition of the two BP refineries brings the total refineries impacted to 11. Generally production is not materially impacted by strikes but the longer it lasts the more stoppages we will see.

Ironically the refinery utilization last week rose from 88.0% to 89.9% and a three week high. Oil inventories rose +6.3 million barrels to 413.1 million and 15.4% over year ago levels and the highest level since records were started in 1982. Having record levels of oil in storage is not conducive to prices moving higher. Global storage locations are nearly full and once consuming countries can no longer store more of today's cheap oil we could see prices implode once again. We will be headed into the high demand summer driving season in about three months and that will help reduce the glut somewhat.

If the dollar continues higher the price of oil will struggle to move higher. There is almost no scenario where the dollar weakens significantly in the coming months. Europe and Japan are racing each other to cheapen their currency and boost their economy. There are rumors that China will also enter the currency war in the coming weeks and that will force all those currencies even lower. With the Fed more likely to hike rates in June that will strengthen the dollar even further.

Active rigs declined -87 last week to 1,456 and bringing the total decline since September's high of 1,931 to -475 rigs. That is a -24.6% decline and analysts are expecting the drop to continue to the 1,000-1,100 level. Six months from now we will see a decline in production.

I would continue to be cautious about new longs until the S&P breaks through that resistance at 2,064 and the assault on the old highs begins. The earnings guidance could be a drag on the market despite the strong jobs report. Remember, the last dozen or so economic reports have been weaker than expected. Rising jobs suggests corporations have an optimistic outlook about the future but it is not yet showing up in the economic reports. Continue to be cautious about new plays until a confirmed trend appears.

Random Thoughts

Newly elected Greek officials are playing a game of chicken with the ECB and EU. On Wednesday the ECB said it would no longer accept Greek government debt as collateral for loans. On Friday the EU set a deadline of February 16th for Greece to apply for additional bailout funds. The current bailout agreement expires on February 28th. If Greece does not apply they will have no source of funds after the 28th. This deadline of the 16th means Greek officials will have to stop talking a belligerent game and either fall in line with the current rules or run out of cash in March.

The risk for the EU/ECB on pulling the bailout plug on Greece is that it may force Greece into a banking collapse and an exit from the Eurozone. They would be forced to establish their own currency. While that does not sound terribly bad it would set a precedent. The Eurozone is built on the idea of the common currency and that design is supposed to be irreversible. If Greece were to exit then it could open the door for Italy and Spain to exit and the Eurozone house of cards comes tumbling down.

Germany is demanding that Greece continue to undergo serious austerity and repay its debt in full, which is approaching 300 billion euros. There is no way this will ever happen simply because Greece has very little money. The interest on the debt is more than Greece can pay so demanding debt repayment on top of that is ridiculous. Greece only has 11 million citizens and the GDP is only 2% of the Eurozone. The ECB/EU/IMF got themselves into this predicament by giving bailout loans to Greece in an amount they can never repay. Now Greece is standing up to the Troika and demanding concessions that the EU/ECB are not likely to ever allow. The newly elected government of Greece was elected on a platform of ending austerity and cancelling the bailout agreements. The new government has to stand firm or there will be riots and violence in Greece. The ECB/EU has to stand firm or risk the entire Eurozone collapsing. One analyst said it was the equivalent of two trucks loaded with dynamite heading towards each other at full speed.

S&P downgraded Greece to B- saying it expected the worst case scenario with bank runs and capital controls followed by an "exclusion from the Economic and Monetary Union."

Russia announced it was increasing military spending +33% in 2015 and plans to increase its nuclear arsenal, which is already the largest in the world. How it plans to do that with oil prices down -50% is the $64 question. Deputy Defense Minister Tatlana Shevtsova said 50% of spending will be to modernize and refurbish the existing military. "Expenses on the defense industry will not be cut regardless of the current economic situation." State defense spending will grow by 20% in 2015 to a peak of 40% growth in 2017. In 2014 the number of weapons supplied to the military rose +65%.

Russia is a big exporter of military hardware but the sanctions have cut into that revenue stream. The drop in oil prices and the rise in the dollar further damaged the Russian economy. Putin could be the Greek savior. He has invited Mr Tsipras to Moscow in May. If Putin can pull Greece into the fold then being kicked out of the Eurozone would be less of a problem for Greece. For Putin Greece is an aircraft carrier in the middle of the Mediterranean. If he establishes a foothold in Greece that becomes a problem for everyone else in the area with Russian military planes and ships basing out of Greece.

The EU will impose more sanctions on Russia on Monday but they are still just pinpricks. Angela Merkel and Francois Hollande went to Moscow last week in an attempt to work on a resolution to the Ukraine problem. The meeting did not go well. Putin continues to claim Russia is not involved in the fighting. The U.S. administration said there was nothing they could do to prevent further fighting and the eventual acquisition of the Donetsk and Luhansk regions by Russia. All that is necessary for evil to flourish is for good men to do nothing.

China is preparing to cut down on global gambling by Chinese citizens. President Xi Jinping warned last week that citizens will be gambling much less in China, neighboring countries and the USA. The deputy chief in the Ministry of Public Security said, "Some foreign countries see our nation as an enormous market...A fair number of neighboring countries have casinos, and they have set up offices in China to attract and drum up interest from Chinese citizens to go abroad and gamble. This will also be an area that we will crack down on."

Xi has seen the outflow of cash as casino chains built billion dollar casinos dedicated to the Chinese gambler. Large sums of money flow out of China and much less returns to China. The government is cutting down on the number of advertisements promoting Macau. Visa restrictions are being tightened and money transferred by retail gamblers is being tracked. The anticorruption crackdown has already slowed the travel of mainlanders to the world's largest gambling center. High rollers don't want the government watching how much money they transfer to Macau. It alerts government watchers to investigate those individuals as part of the corruption crackdown. Gaming revenue in Macau declined -30% in December alone. MGM and LVS are in trouble if this trend continues.

The Baltic Dry Shipping Index hit a new 30-year low last week as the demand for dry commodity carriers falls to a cycle low as a result of the economic decline in Europe and China. This is the price to rent a dry bulk carrier by the day. It is hard to build any kind of bullish scenario for the coming year with commodity demand falling off a cliff.

Deflation in the U.S. rose to levels not seen since October 2008 according to the ISM report. The prices paid component of the ISM declined to 35 or a -3.5% fall compared to December. Only 11% of respondents reported paying higher prices while 41% reported paying lower prices. This is the third consecutive month of declines with the price component declining -18.5% over the last three months. In the ISM any number over 50 represents an increase and under 50 represents a contraction. Of the 18 manufacturing industries the only industry reporting an increase in prices paid was the Printing and Related Support Activities. That is hardly a benchmark industry. If the decline continues the USA will be struggling to fight deflation and our Fed interest rates are already at zero.

A Societe Generale's strategist, Albert Edwards, has warned that the deflation threat currently dogging the euro zone is greater in the U.S. and that equity markets will soon be "ripped to smithereens." Also, "The deflationary fault line on which the U.S. sits is every bit as precarious as that of the euro zone, but is being disguised," he said in a new research note on Thursday. "The scales will soon lift from the market's eyes." Edwards is seen as bearish by the rest of the analyst community. Link to his full statement.

Yields on Nestle's corporate debt went negative last week. That means investors are essentially paying a fee to buy Nestle's debt just so they can park their cash somewhere safe. Euro denominated debt of Shell and Novartis are also approaching negative yields. Euro denominated debt from Bank of America, General Electric and McDonalds are all trading at zero yields. Yields on government debt from Belgium, Denmark, France, Germany and Japan are all negative. Bank of America estimates that yields are now negative on of 1.2 trillion euros of European debt compared to 500 billion euros at the end of October.

Need condoms? Don't buy them in Venezuela. A 36-pack is now selling for $755 or 85% of the national monthly minimum wage. Inflation is so bad citizens can't afford to buy anything even if they could find it on store shelves. The military was guarding food stores until last week when they took them over to prevent price hikes. Citizens wait hours in line only to enter the stores and find nothing on the shelves. Starvation is everywhere and the situation is getting worse by the day for the 29 million citizens. Hospitals, clinics and surgical centers are shutting down because they have no supplies and no doctors. Everyone that could flee the country already has. It will not be long before disease is rampant and the government is overthrown.

Radio Shack finally pulled the plug on its recovery and filed bankruptcy last week. The company started in 1921 in Boston selling ham radios. Over the years the stores have progressed from selling the first computers, a TRS-80 with an operating system written by Bill Gates in 1977. In 1983 it sold the first laptop called the TRS-80 Model 100. In 1984 they started selling mobile phones and satellite TV in 1985. Today it has more than 4,000 stores and plans to sell 2,400 of them in the bankruptcy. Sprint and hedge fund Standard General will purchase the stores. Sprint will operate 1,750 of them as phone stores but they will still carry the Radio Shack brand. Radio Shack has $1.3 billion in debt and $1.2 billion in assets. The new symbol is RSHC, now trading at 13 cents. How far have computers come? Click here to see the 1981 computer catalog.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"Everyone is a disciplined, patient investor, entirely focused on the long term. And then an hour goes by."

Josh Brown


Index Wrap

Major Indices Rebound From Low End of Month-Old Trading Range

by Leigh Stevens

Click here to email Leigh Stevens

We've seen a 1-2 month trading range market within a long-term bull trend. It wasn't then surprising to see the major indexes rebound this past week. If looking for a strongly trending market you may have missed what the indexes can give you so to speak; e.g., some two-sided trading opportunities of a shorter-term nature.

The December-early Feb. price range in SPX has been approximately 1973-2093. The January to early-Feb. SPX range to date has been 1990-2063.

The December-early Feb. price range in COMP has been approximately 4550-4815. The January to early-February COMP range has been 4575 to 4750-4773.

Last week I noted that there was the possibility of a downswing that might carry to below the aforementioned 1-month+ range, consistent with one more shot up in the S&P 500 VIX Volatility Index to above 22. SPX did see an intraday low at 1981, a bit below 1990 support; and of course rebounded after SPX futures traders 'collected' the remaining March futures sell-stops below 1990. It was then up, up and away. However, if the thought was that this was going to be a straight up rally from these lows, this isn't the nature of 'trading-range' market, which is 'caused' by the various fundamental cross-currents we're seeing currently, not uncommon in the Jan-Feb period.

Yes, we got huge job numbers, but WHAT ABOUT THE FED RAISING RATES! A very common theme: the fear of too much of a good thing! This can drive you crazy if you try to analyze the two-sided bullish/bearish anticipated influences too much. I solved this problem for myself a long time ago when I started trading pretty much off what the charts were 'showing' me; i.e., as to where the buying or selling is coming in and what the resulting price and indicator pattern(s) suggested as to the present and future trend(s).

As to the VIX, the Index did reach 22.18 intraday on the Friday preceding but not on a closing basis. I thought it possible there could be one such VIX Close above 22 this past week and that might mark the bottom but this didn't occur. My trading stance was to look for a place to buy SPX calls AND to buy VIX puts. VIX went out on Friday at 17.29. SPX went from 1995 on Friday last (1/30/15) to 2055 on Friday past (2/6/15).

On an intraday basis SPX went from a Friday peak of 2072 back down to 2055. The S&P 500 found tough going and selling interest above a prior line of resistance in the 2063 area and the Nasdaq Composite (COMP) topped out Friday after crossing briefly above down trendline resistance as is highlighted with the COMP daily chart below.

VIX Technical Commentary; Daily and Hourly charts

I'm trying out regular weekly commentary on the S&P 500 Volatility Index (VIX); I'll continue this week to feature both the VIX daily and hourly charts.

VIX traded 532,844 contracts on Friday; 420,000 calls, 112,000 puts. Of course since there is a lot of hedging in VIX calls versus stock portfolio (downside) risk by fund managers, it isn't surprising to see a nearly 4:1 ratio, call volume to puts. As an individual speculator, I was looking to be long VIX puts based on the probability that a move ABOVE 22 would be short-lived and it was. I was and am anticipating a drop in VIX back to the 16 area and possibly back to 14. Stay tuned on that!

You'll notice that I'm using a Close-only 'line' chart below. On an intraday basis VIX peaked at 22.18, saw a intraday Low of 19.24 and Closed up 2.21 (+10.5%) at 20.97.

The S&P 500 Volatility Index (VIX) Daily chart:

I generally use and display here a Close-only 'line' VIX chart. The intraday fluctuations can be extreme and can be a distraction in terms of VIX analysis on a day to day, week to week basis. At times I may note a particular VIX intraday high on this chart if that intraday high took the Index above resistance. [I'll use a 'standard' Open-High-Low-Close (OHLC) bar chart in my second VIX chart below, which is the Index on an extended hourly basis.]

VIX, a week ago (Friday 1/30/15) got up to an intraday high at 22.18, above anticipated resistance in the 22 area. There wasn't the similar Close at/above 22 that I thought could occur this past week. S&P volatility started falling from that 22.18(intraday) peak. I consider a VIX reading above 22, especially on a Closing basis, to be an 'extreme'; I consider VIX in the 22-26 zone currently to be at an overbought 'extreme' and anticipate a gradual decline, probably back to 16 and perhaps falling again to 14 or under.

Just as with the major stock indexes, VIX will see overbought or oversold extremes from time to time, usually marking (respectively) an area where a VIX top or bottom may occur.

The S&P 500 Volatility Index (VIX) Hourly chart:

The extended hourly VIX chart seen next provides a closer-in view of the past few weeks' action, with downside turning points (red down arrows) that developed already or may develop again ahead as anticipated resistance(s). Conversely, the green up arrows mark past upside turning points/support that occurred previously or are anticipated ahead.

I consider carefully the potential for a short to intermediate-term trend reversals when VIX advances to the upper 'overbought' area or into the 'oversold' zone in terms of the Relative Strength Index (RSI) with 'length' set to '21' and applied to the hourly VIX chart. (On a VIX daily chart, I use a 'length' setting of '13' for the RSI to suggest a more intermediate overbought or oversold condition as seen above.)


The S&P 500, as noted above in my 'bottom line' commentary, has had a 2-month old trading range, December into early February, from approximately 1973 to 2093. The January to early-February SPX trading range to date has been from around 1990 to 2063. I anticipate that SPX can again work up to re-test earlier resistance at prior highs in the 2093 area.

To get to the 2090-2100 area SPX must first overcome a line of prior resistance at 2063. The Index failed to do this Friday and pulled back to near support implied by the previously pierced up trendline at 2048 currently. Chart support extends to the 21-day moving average at 2032. Highlighted, more intermediate support is seen in the 2020 area; next chart support then is suggested at 2000-1990.

Near resistance is at 2063-2072; further SPX resistance is suggested at the prior 2093 top.

There's primarily only been potential for shorter-term trading within the relatively narrow trading range the S&P has been in. I anticipate an eventual breakout above 2062-2065, the 2090-2093 on to 2125 or higher. I'll also be looking at bullish trade strategies on a pullback to the 2000-1990 area if that were to occur again, especially with a low RSI and low bullishness.

If there was another bear move, 1973 down to 1950 could be tested. I'm not expecting this but I've generally favored waiting for 'oversold' RSI extremes to occur for a favorable risk to reward outlook and in order to trade on the side of the long-term uptrend. Two prior bullish intermediate trade opportunities came in mid-December as also occurred with an 'oversold' RSI and dips in bullish sentiment. Bearishness built up again in early-January but upside potential then was 60 points rather than the 100 point price swing that came earlier. Waiting pays off in this market!


The S&P 100 (OEX) chart is bullish; more so than big brother SPX given the breakout above its down trendline. However, must hold support for the bulls comes in at 900 next support then is suggested around 880.

Key OEX resistance is seen at the prior high at 924. My maximum upside objective in the near-term it to the 930 area.

I'd be happy to take profits on calls in the 920 area, if reached.


The Dow 30 (INDU) Average is bullish in its pattern with the breakout above 17600 trendline resistance. 18000 could be reached, then 18100 or a bit higher as a next target.

17600 is key near Dow support, then at 17400. A Close below 17400 that was sustained would be a bearish chart development.

Buying the last dip to under 17100 was a great move if you managed that feat; taking profits in the Dow Index on an extension of this recent advance seems a wise move to keep call profits. I don’t see that we can count on a big new up leg just yet. 18200 looks to be a maximum upside target.


The Nasdaq Composite (COMP) is bullish in its pattern if it can overcome trendline resistance at 4765. Upside potential above this area doesn't look huge, perhaps to 4815 or a bit higher, to the 4860 area at most in my estimation.

Key near support is at 4700. Fairly major support then comes in around 4600. I'd look at the price range as a guide to trading. As noted in my initial comments above; i.e., the wider 2-month price range (December-early February) in COMP has been 4550-4815. As a guide to trading the NDX options, this past month or so (January to early-February) COMP range has been 4575 to 4750-4773. I don't see a compelling chart story to suggest a sizable upside move ahead, at least near-term.


NDX has to gain traction above 4273 to keep bullish momentum going. Next resistance is at 4335.

Near support is seen in the 4200 area. Major support begins in the 4100 area.

I'm neutral/no strong opinion on looking for much further upside in this sideways trend. 4100 was a positive buy and 4300 would be a place to take profits.


The QQQ trend is mixed is bullish but with resistance at 104. A decisive upside penetration of 104 could lead to 106.

Key support is seen at 102, with major support beginning at 100. Volume indicators are mixed. Stay long pending what happens at the resistance trendline.


I didn't mention in my initial my 'bottom line' index commentary, but the bullish Russell chart pattern is slightly better than the other indexes after RUT traced out a symmetrical triangle that was followed by the Index's breakout above the upper trendline, suggesting upside potential to 1260 or higher.

Near resistance in RUT is seen at 1220, extending next to 1240. Near support is highlighted (green up arrow) at 1193, extending to the 50-day moving average at 1183. Next support comes in around 1165, extending to 1153.

Fly in the bullish ointment is with a sustained move below 1160. Major support then begins in the 1140 area. RUT also has a pattern of downside OR upside reversals after upper or lower RSI extremes occur.


New Option Plays

Recreational Vehicles & Industrial Goods

by James Brown

Click here to email James Brown


Thor Industries - THO - close: 59.84 change: +0.82

Stop Loss: 57.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 352 thousand
Entry on February -- at $---.--
Listed on February 07, 2015
Time Frame: Exit PRIOR to earnings in March (no date yet)
New Positions: Yes, see below

Company Description

Why We Like It:
Thor was making headlines this week. The small country of Iceland has started building a temple to the Norse god and other deities, which will be the first such building in the last 1,000 years. However, tonight we are not talking about Norse deities and instead looking at Thor Industries, one of the largest manufacturers of RVs in the world.

THO is part of the consumer goods sector. They were founded back in 1980 by Wade Thompson and Peter Orthwein when they bought Airstream. Today the company makes a large number of recreational vehicles under several brand names that fall into two segments: towable RVs and motorized RVs.

There are more than 76 million baby boomers in the U.S. and they started hitting retirement age in 2011 at the rate of 10,000 a day. With many boomers looking for an active retirement the demand for RVs is likely to remain strong.

USA Today recently ran an article discussing how the RV industry has rebounded sharply following the Great Recession. The industry was expecting +8% growth in 2014 and RV makers just saw their best October in almost 40 years. One piece of the puzzle that could be boosting demand is gasoline prices at three-year lows. That makes these massive gas guzzlers (RVs) a lot more attractive.

THO recently announced an acquisition where they purchased towable recreational maker Cruiser RV and luxury fifth wheel RV maker DRV. This strengthens THO's towable product line, an area that was already seeing significant growth.

THO's most recent earnings report was back on December 1st, 2014. The company disappointed on the bottom line with earnings of $0.73 a share. That missed Wall Street estimates by 8 cents. However, revenues soared +15% to $922 million, which surpassed estimates. THO blamed a tight labor market in Indiana for the margin pressure. The company did offer a bullish update on its backlog. The company's motorized backlog dipped 18% but its towable backlog surged +56% (this is before their recent acquisition).

The stock did see a post-earnings sell-off in early December but THO has recovered. After churning sideways the last several weeks the stock has broken out to new multi-month highs. The point & figure chart is bullish and forecasting at $77 target.

Tonight we are suggesting a trigger to buy calls at $60.25. I'm suggesting the March calls since THO will likely report earnings in March and we do not want to hold over the announcement. We'll update our time frame when THO confirms its earnings date.

Trigger @ $60.25

- Suggested Positions -

Buy the MAR $60 CALL (THO150320C60) current ask $2.20

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

Daily Chart:

Weekly Chart:


Cummins Inc. - CMI - close: 135.86 change: -2.25

Stop Loss: 140.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.9 million
Entry on February -- at $---.--
Listed on February 07, 2015
Time Frame: 6 to 8 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Thus far 2015 has not been a great year for shares of CMI. The stock is down -4.2% while the broader market is flirting with a minor gain for the year. CMI is in the industrial goods sector.

The company describes itself as "Cummins Inc., a global power leader, is a corporation of complementary business units that design, manufacture, distribute and service diesel and natural gas engines and related technologies, including fuel systems, controls, air handling, filtration, emission solutions and electrical power generation systems. Headquartered in Columbus, Indiana, (USA) Cummins currently employs approximately 54,600 people worldwide and serves customers in approximately 190 countries and territories through a network of approximately 600 company-owned and independent distributor locations and approximately 7,200 dealer locations. Cummins earned $1.65 billion on sales of $19.2 billion in 2014."

CMI's earnings report in late October (Q3) was strong as they beat estimates on both the top and bottom line. Management also offered bullish guidance. Unfortunately conditions have deteriorated in the last three months. CMI is a good example of why we like to avoid holding over a company's earnings report. Their most recent earnings report was February 5th. They beat estimates and delivered record numbers but the stock dropped thanks to lowered guidance.

You have to give credit to analyst firm First Global who downgraded CMI in late January on worries that weak emerging markets would hurt CMI's business. They were correct. Over half of CMI's sales come from outside the U.S. Weak demand overseas (thanks to the global slowdown) and a significantly stronger dollar hurt CMI's results and more importantly their guidance.

CMI's Q4 profit surged +32% from a year ago to $2.56 a share. That's five cents above estimates. Revenues rose +11% from a year ago to $5.1 billion, also above estimates. Their full year revenues hit a record $19.2 billion, thanks in large part to +20% sales growth in North America. Unfortunately most of the world is seeing an economic decline. CMI management lowered their forecast. Previously the company was projecting 2015 sales in the $20-23 billion range. They just lowered their forecast $19.6-20.0 billion in sales for 2015.

This bearish sales forecast send the stock lower. Investors ignored the company's pledge to return 50% of its operating cash flow back to shareholders in 2015. A couple of Wall Street analysts have already lowered their price targets on CMI's stock following the company's guidance.

Technically CMI's stock has broken down from a multi-week consolidation. The recent weakness has generated a new sell signal on the point and figure chart that is forecasting at $122 target. Shares sit just above potential round-number support at $135.00. Tonight we are suggesting a trigger to buy puts at $134.90.

Trigger @ $134.90

- Suggested Positions -

Buy the MAR $130 PUT (CMI150320P130) current ask $2.45

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

Daily Chart:

Weekly Chart:

In Play Updates and Reviews

Stocks Dip In Spite Of Strong Jobs Number

by James Brown

Click here to email James Brown

Editor's Note:

Stocks delivered a strong week of gains but traders were in the mood to take profits on Friday in spite of a better than expected nonfarm payroll number. The talking heads on TV blame the S&P's decision to downgrade Greek debt as the turning point. Odds are traders were just looking for an excuse to take some money off the table ahead of the weekend.

Current Portfolio:

CALL Play Updates

Hanesbrand Inc. - HBI - close: 115.52 change: +1.38

Stop Loss: 109.90
Target(s): To Be Determined
Current Option Gain/Loss: +9.0%
Average Daily Volume = 800 thousand
Entry on February 03 at $114.14
Listed on February 29, 2015
Time Frame: Exit PRIOR to HBI's stock split on March 4th
New Positions: see below

02/07/15: HBI delivered a decent week. The rally off round-number support at $110 on Monday turned into a five-day surge back toward its recent highs. HBI displayed relative strength on Friday with a +1.2% gain.

I would be tempted to buy calls now at current levels. Just keep in mind our time frame. We want to exit prior to HBI's 4-for-1 split on March 4th.

Earlier Comments: February 2, 2015
How many stocks can you name that are up +400% in the last three years? HBI is in the consumer goods sector. They make apparel under a variety of brand names. Shares of HBI have been a big performer the last few years, outperforming the broader market.

According to the company, "HanesBrands, based in Winston-Salem, N.C., is a socially responsible leading marketer of everyday basic apparel under some of the world's strongest apparel brands in the Americas, Asia and Europe, including Hanes, Champion, Playtex, DIM, Bali, Maidenform, Flexees, JMS/Just My Size, Wonderbra, Nur Die, Lovable and Gear for Sports. The company sells T-shirts, bras, panties, shapewear, men's underwear, children's underwear, socks, hosiery, and activewear produced in the company’s low-cost global supply chain."

A good reason shares have been rising so consistently has been HBI's bullish guidance. Last year the company raised its earnings guidance three quarters in a row. Their most recent earnings report was January 29th (last week). HBI's Q4 results were $1.46 a share with revenues surging +20% to $1.55 billion. The bottom line number was two cents above estimates while revenues met estimates.

HBI said that 2014 was its second consecutive year of record results. Net sales rose +15% while its profit grew +28% and adjusted EPS soared +45%. Hanes Chairman and CEO Richard A. Noll commented on their results saying,

"We had another outstanding year in 2014, generating significant shareholder value and again achieving record results for sales, operating profit and EPS. We are in the midst of a multiyear period of strong growth supported by our powerful company-owned global supply chain, Innovate-to-Elevate product platforms, and acquisitions. Our guidance for 2015 translates into another year of double-digit EPS growth and what would be another record year for sales, profit and EPS, despite the challenges of currency exchange rates."

HBI's new guidance sees 2015 revenues in the $5.77-5.82 billion range. That's +9% growth but a little bit below Wall Street's estimates. HBI is forecasting earnings in the $6.30-6.50 range, which equals about +11% to +15% growth.

Management also raised its cash dividend +33% to $0.40 a share. On top of that they issued a 4-for-1 stock split. The split is coming up soon. HBI will start trading split adjusted on March 4th, 2015. We think HBI could see an old-fashioned split run.

Tonight we are listing a trigger to buy calls at $114.10. We'll start this trade with a stop at $109.90. Plan on exiting before the March 4th stock split date.

- Suggested Positions -

Long MAR $115 CALL (HBI150320C115) entry $3.21

02/03/15 triggered @ 114.14 on an intraday gap higher. Suggested entry was $114.10
Option Format: symbol-year-month-day-call-strike


ServiceNow, Inc. - NOW - close: 74.94 change: +0.72

Stop Loss: 69.85
Target(s): To Be Determined
Current Option Gain/Loss: -10.9%
Average Daily Volume = 1.1 million
Entry on February 05 at $75.15
Listed on February 04, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

02/07/15: NOW continues to look strong. Shares displayed relative strength on Friday with a +0.9% gain. This is a new all-time closing high. Shares are still struggling to breakout past the $75.00 mark. Friday's intraday high was $75.15. I am suggesting readers wait for a rally past $75.15 before initiating new positions.

Earlier Comments: February 4, 2015:
Tonight we are looking at a company that saw its sales grow more than 60% last year. They're forecasting more than 40% growth in 2015. That company is cloud-based services ServiceNow.

NOW describes itself as "ServiceNow is changing the way people work. With a service-orientation toward the activities, tasks and processes that make up day-to-day work life, we help the modern enterprise operate faster and be more scalable than ever before. Customers use our service model to define, structure and automate the flow of work, removing dependencies on email and spreadsheets to transform the delivery and management of services for the enterprise. ServiceNow provides service management for every department in the enterprise including IT, human resources, facilities, field service and more. We deliver a 'lights-out, light-speed' experience through our enterprise cloud – built to manage everything as a service."

This company has been consistently guiding their earnings forecast higher. They've done it at least the last four earnings reports in a row. Their most recent earnings report was January 28th. NOW reported their Q4 results of $0.03 a share compared to a loss of 2 cents a year ago. Analysts were expecting a profit of 2 cents a share. Q4 revenues soared +58% to $198 million, which was above expectations.

Some of the highlights from their fourth quarter include billings up +62% year over year and up +34% quarter over quarter. Deferred revenues were up +20% for the quarter. NOW added 211 net new customers, bumping their total to 2,725. Their customer renewal rate was 97%.

NOW said their 2014 revenues soared +61% compared to 2013. Their backlog at the end of 2014 hit $1.4 billion. That's a +57% jump from a year ago. NOW's President and CEO Frank Slootman said, "We finished 2014 with strong metrics across the board, maintaining consistently high year-over-year growth rates. In addition to a growing list of new customers that now includes more than 25% of the Global 2000, we continue to see existing customers expand their relationship with us, resulting in the highest quarterly upsell rate since our IPO." NOW's CFO Michael Scarpelli said, "Within the Global 2000, annualized contract value per customer has increased 40% year-over-year. These expanding contracts have helped us grow our combined backlog and deferred revenue 57% year-over-year."

NOW offered bullish guidance. They expected Q1 revenues to grow +50% in the $207-212 million range compared to Wall Street's estimates of $202.4 million. NOW's 2015 guidance is forecasting revenue growth in the +41% to +47% range in the $960-1,000 million zone versus analysts' estimates of $948 million.

These strong numbers and the consistent growth makes them a popular candidate among Wall Street analysts. After NOW's most recent earnings report several analyst firms raised their price target on NOW's stock.

Technically shares have just recently broken out through major resistance near $70.00. The point & figure chart is bullish and forecasting a long-term target of $97.00. The last few days have seen shares consolidating sideways in the $70-75 range. Tonight we are suggesting a trigger to buy calls at $75.15.

- Suggested Positions -

Long MAY $80 CALL (NOW150515C80) entry $3.93

02/05/15 triggered @ 75.15
Option Format: symbol-year-month-day-call-strike


Starbucks Corp. - SBUX - close: 89.00 change: -0.64

Stop Loss: 85.80
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 5.1 million
Entry on February -- at $---.--
Listed on February 05, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

02/07/15: The stock market rally paused on Friday and SBUX followed suit. Shares quickly drifted sideways inside Thursday's trading range. I don't see any changes from the Thursday night new play description below.

Earlier Comments: February 5, 2015:
The world seems to have an insatiable appetite for coffee. Starbucks is more than happy to help fill that need. The first Starbucks opened in Seattle back in 1971. Today they are a global brand with locations in 66 countries. SBUX operates more than 21,000 retail stores with more than 300,000 workers.

A few years ago Business Insider published some facts on SBUX. The average SBUX customer stops by six times a month. The really loyal, top 20% of customers, come in 16 times a month. There are nearly 90,000 potential drink combinations at your local Starbucks. The company spends more money on healthcare for its employees than it does on coffee beans.

The company's earnings results were only mediocre most of 2014 year. You can see the results in SBUX's long-term chart below. After incredible gains in 2013 SBUX has essentially consolidated sideways in 2014. The good news is that looks the consolidation is over.

Five-Year Plan

Late last year SBUX announced their five-year plan to increase profitability. Here's an excerpt from a company press release:

"The seismic shift in consumer behavior underway presents tremendous opportunity for businesses the world over that are prepared and positioned to seize it," Schultz said (Howard Schultz is the Founder, Chairman, President, and CEO of Starbucks). "Over the next five years, Starbucks will continue to lean into this new era by innovating in transformational ways across coffee, tea and retail, elevating our customer and partner experiences, continuing to extend our leadership position in digital and mobile technologies, and unlocking new markets, channels and formats around the world. Investing in our coffee, our people and the communities we serve will remain at our core as we continue to redefine the role and responsibility of a public company in today's disruptive global consumer, economic and retail environments."

"Starbucks business, operations and growth trajectory around the world have never been stronger, and we are more confident than ever in our ability to continue to drive significant growth and meet our long term financial targets," said Troy Alstead, Starbucks chief operating officer. "We have more customers visiting more stores more frequently, both in the U.S. and around the world, than at any time in our history. And we expect both the number of customers visiting our stores and the amount they spend with us to accelerate in the years ahead. With a robust pipeline of mobile commerce innovations that will drive transactions and unprecedented speed of service, Starbucks is ushering in a new era of customer convenience. We believe the runway of opportunity for Starbucks inside and outside of our stores is both vast and unmatched by any other retailer on the planet."

The company believes they can grow revenues from $16 billion in FY2014 to almost $30 billion by FY2019. To do that they will expand deeper into regions like China, Japan, India, and Brazil. SBUX expects to nearly double its stores in China to over 3,000 locations in the next five years

They're also working hard on their mobile ordering technology to speed up the experience so customers don't have to wait in line so long at their busiest locations. This will also include a delivery service.

Part of the five-year plan is a new marketing campaign called Starbucks Evening experience. The company wants to be the "third place" between home and work. After 4:00 p.m. they will start offering alcohol, mainly wine and beer, in addition to new tapas-like smaller plates.

The company recently launched its first ever Starbucks Reserve Roastery and Tasting Room in Seattle, near their iconic first retail store. The new roastery is supposed to be the ultimate coffee lovers experience. CEO Schultz said they will eventually open up about 100 of these Starbucks Reserve locations.

SBUX is having a pretty good 2015 so far with the stock up +8.1%, outperforming the broader market. A lot of this gain was thanks to a post-earnings pop. SBUX reported its Q1 2015 results on January 22nd. Adjusted earnings, backing out one-time charges, were $0.80 a share. That's in-line with estimates. Revenues were up +13.3% to $4.8 billion, also in-line with estimates. Investors applauded the news anyway and sent SBUX soaring to new all-time highs the next day.

SBUX said their worldwide comparable store sales rose +5% while traffic only rose +2%. It was the 20th consecutive period that same-store sales were up +5% or more. It was a very strong holiday period for SBUX thanks in part to astonishing gift card sales. The amount of money loaded onto SBUX gift cards during the holidays surged +17% to a record $1.6 billion. One out of every seven Americans received a SBUX gift card. The company also saw significant growth overseas with its China and Asia-Pacific business soaring +85% to sales of $495 million. Their mobile transactions have reached seven million transactions a week.

SBUX's guidance was pretty lackluster but Wall Street didn't care. The company actually guided down for the Q2 2015 (current quarter) as they expect earnings in the $0.64-0.65 range. Analysts' were expecting $0.68 a share. SBUX also provided 2015 guidance of $3.09-3.13 versus Wall Street's estimate of $3.12. The company is still projecting 2015 sales growth of 16% to 18% as they see sales ramping up in the second half of 2015. They also updated their outlook on China as they plan to add 3,400 stores by 2019.

Investor sentiment on SBUX is bullish. Shares have not seen barely any profit taking following its post-earnings pop. Now, after two weeks of digesting gains, the stock is pushing higher and poised to breakout past resistance at $90.00. The point & figure chart is bullish and forecasting at $104.00 target.

Tonight we are suggesting a trigger to buy calls at $90.25 with an initial stop loss at $85.80.

Trigger @ 90.25

- Suggested Positions -

Buy the Apr $95 CALL (SBUX150417C95)

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


Constellation Brands - STZ - close: 112.91 change: +0.25

Stop Loss: 108.40
Target(s): To Be Determined
Current Option Gain/Loss: +29.6%
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

02/07/15: It looks like STZ may have finally broken out from its $110-112 trading range. Traders bought the dip at short-term support on the rising 10-dma on Friday. STZ outperformed the market with a minor gain to close at new record highs.

This breakout looks like a new bullish entry point but our February options expire in two weeks. If you're thinking about launching positions consider the March or April calls.

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

02/07/15 Our February options have two weeks left
01/31/15 new stop @ 108.40
01/15/15 triggered on gap open at $109.36, trigger was $108.65
Option Format: symbol-year-month-day-call-strike


UnitedHealth Group - UNH - close: 107.60 change: -1.22

Stop Loss: 104.85
Target(s): To Be Determined
Current Option Gain/Loss: -20.3%
Average Daily Volume = 4.2 million
Entry on February 04 at $108.25
Listed on February 03, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

02/07/15: Friday's dip in shares of UNH snapped a four-day winning streak. What concerns me is that Friday is also the second day in a row that UNH struggled with overhead resistance in the $110 area. If this pullback continues the nearest support is the $105.00 mark. Considering the market-wide weakness on Friday I would hesitate to launch new trades here.

Earlier Comments: February 3, 2015
Healthcare stocks have been consistent winners for investors over the last couple of years. Just check out a long-term chart of the IHF or XLV healthcare ETFs. Helping the group lead that charge is UNH, one of the biggest names in healthcare. The company's various businesses serve more than 85 million people around the world. The company is ranked No. 14 on the Fortune 500 list.

UNH has two different business segments. They have their UnitedHealthcare business and their Optum business. UnitedHealthcare provides health benefit products and services. Their Optum business is a health management services company.

The Affordable Care Act (ACA, or Obamacare) had a rough start but now the system is clearly seen as a huge benefit for the health insurance companies. According to Bloomberg the ACA has added millions of new customers to the healthcare industry. UNH recently joined the public exchanges and added more than 400,000 new individuals. UNH did say they are paying significantly more fees and taxes due to the ACA but thus far their increase in customers and better operating efficiency in 2014 have kept the costs manageable.

The results are showing up in the company's earnings growth. In July 2014 the company beat estimates and raised their guidance. In October 2014 they beat estimates and raised their guidance. In early December UNH reaffirmed their 2014 guidance and offered a 2015 forecast that was in-line with Wall Street estimates.

Their most recent earnings report was January 21st. The results were slightly ahead of expectations with profits up +10% from a year ago to $1.55 per share with revenues rising +7.4% to $33.43 billion. That was enough to surpass estimates of $1.50 a share on revenues of $33.15 billion.

UNH's CEO Stephen Hemsley commented on their business saying, "We enter 2015 with a positive outlook and rising business momentum. Steady innovation and year by year advances in the quality, breadth and value of our services to employers, government sponsors, consumers and care providers are creating opportunities for revenue and earnings growth in traditional and new markets."

Management offered 2015 guidance that was in-line with prior estimates. They expect earnings to grow about +7.4% in the $6.00-6.25 range. Revenues are expected to rise +8.0% in the $140.5-to-141.5 billion range.

The stock exploded higher on its better than expected Q4 numbers. Since the post-earnings rally peaked the stock has seen a nice correction. Traders just bought the dip yesterday near support at $105.00. We want to hop on board this healthcare train and buy the rebound. There appears to be short-term resistance near $108.00. Tonight we're suggesting a trigger to buy calls at $108.25.

- Suggested Positions -

Long MAR $110 CALL (UNH150320C110) entry $2.46

02/04/15 triggered @ 108.25
Option Format: symbol-year-month-day-call-strike


Valeant Pharmaceuticals - VRX - close: 161.99 change: +0.54

Stop Loss: 155.85
Target(s): To Be Determined
Current Option Gain/Loss: -12.5%
Average Daily Volume = 2.5 million
Entry on January 26 at $160.55
Listed on January 24, 2015
Time Frame: Exit PRIOR to earnings on February 24th
New Positions: see below

02/07/15: VRX managed to eke out another gain after traders bought the dip near its rising 10-dma again. The last several days have seen VRX struggle with resistance in the $162.50-163.00 area. I am not suggesting new positions at this time.

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

02/03/15 News that VRX is interesting in buying SLXP
01/26/15 triggered @ 160.55
Option Format: symbol-year-month-day-call-strike


Whole Foods Market, Inc. - WFM - close: 53.53 change: +0.15

Stop Loss: 51.25
Target(s): To Be Determined
Current Option Gain/Loss: +82.6%
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

02/07/15: I'm surprised that WFM didn't show more strength on Friday. Two different firms raised their price target on this stock. Plus, Jim Cramer was calling WFM a buy on Friday. Yet shares struggled to close in positive territory on Friday, of course that was better than the major averages could muster.

WFM's earnings are coming up on Wednesday, February 11th. Tonight I am suggesting we plan on exiting Tuesday, February 10th, at the closing bell to avoid holding over earnings. 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

02/07/15 plan on exiting Feb. 10th at the closing bell
01/31/15 new stop @ 51.25
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


Williams-Sonoma Inc. - WSM - close: 80.19 change: -0.28

Stop Loss: 77.85
Target(s): To Be Determined
Current Option Gain/Loss: -3.1%
Average Daily Volume = 990 thousand
Entry on February 03 at $79.35
Listed on January 29, 2015
Time Frame: Exit PRIOR to earnings in March
New Positions: see below

02/07/15: WSM kept pace with the market's decline on Friday. The intraday high was $81.06. I'm suggesting readers wait for WSM to rally past $81.15 before considering new bullish positions.

Earlier Comments: January 29, 2015:
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.

*start with small positions* - Suggested Positions -

Long MAR $80 CALL (WSM150320C80) entry $3.20

02/04/15 new stop @ 77.85
02/03/15 triggered on gap higher at $79.35, new trigger was $79.15
02/02/15 Strategy Update: Move the entry trigger from $81.15 to $79.15. Adjust the stop loss to $75.90. Adjust the option strike from March $85 call to March $80 call.
Option Format: symbol-year-month-day-call-strike


Zebra Technology - ZBRA - close: 87.15 change: +0.19

Stop Loss: 83.85
Target(s): To Be Determined
Current Option Gain/Loss: +29.4%
Average Daily Volume = 494 thousand
Entry on January 12 at $80.85
Listed on January 10, 2015
Time Frame: Exit prior to February option expiration
New Positions: see below

02/07/15: Traders bought the dip on Friday near $86.00. ZBRA rebounded to set a new all-time closing high. Investors may want to raise their stop loss again.

Don't forget that our February options expire in two weeks. 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

02/04/15 new stop @ 83.85
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: 71.66 change: -2.94

Stop Loss: 75.05
Target(s): To Be Determined
Current Option Gain/Loss: -23.8%
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

02/07/15: Shares of HOT collapsed -3.9% on Friday after the stock was downgraded before the opening bell. Let's hope this sell-off continues on Monday because we are almost out of time.

HOT is scheduled to report earnings on February 10th (Tuesday) before the opening bell. Since we do not want to hold over the report we need to exit this trade on Monday. I am suggesting we exit on Monday, February 9th at the closing bell.

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

02/07/15 prepare to exit on Monday at the closing bell.
01/29/15 new stop @ 75.05
01/14/15 triggered @ 73.90
Option Format: symbol-year-month-day-call-strike