Option Investor

Daily Newsletter, Wednesday, 1/6/2016

Table of Contents

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

Market Wrap

If Santa Should Fail to Call...

by Keene Little

Click here to email Keene Little
The Santa Claus rally typically occurs between Christmas and New Year's and into the first couple of days in January but Santa's abductors did not release him and he was therefore a no-show. Now we're facing the rest of the statement "...Bears May Come To Broad and Wall." Today the bears pounced again after Tuesday's consolidation and now we're left to wonder about the January barometer.

Today's Market Stats

More weak economic data out of China and reports of another nuclear test by Korea (this time supposedly a hydrogen bomb) sent overnight traders packing and the selloff in the futures, like Sunday night, resulted in a gap down to start our trading day. A bounce recovery failed and an afternoon decline dropped the indexes below the morning lows. It looks bearish but we have some short-term bullish divergences and a price pattern suggesting a bounce into the end of the week could be next.

The Santa Claus rally was a complete no-show and that bodes ill for the market. The other thing that's not looking good at the moment is how the first week of January will go. The bulls have some work to do to erase the decline from the December 31st close. For SPX that means we need a rally above 2044 to get back into the green for the year before Friday's close. It could happen (54 points in the next two days) but at the moment it's not looking good. The first week of January typically sets the tone for the rest of the month and as goes January so goes the year, both of which are looking more favorable for the bears than the bulls at the moment. But the year is young and we all know how quickly things can change. Just look at the volatility since November's high.

Affecting the market this morning was more bad news out of Asia. Following Monday's report about China's weakening manufacturing sector (as the world buys less stuff from them) this morning's report on China's purchasing-manager's index showed a drop to a 17-month low in December, which only adds to the angst about how much China's economy is slowing (and all the debt involved that could affect the global financial system). It's getting harder and harder to avoid the fact that China's slowing is a reflection of a slowing global economy, which then makes it harder to justify why the U.S. will be able to avoid a slowdown as well. We are all inexorably linked together.

Factory orders in the U.S. were revised lower for October, from +1.5% to +1.3%, and declined -0.2% in November. The market expected this number so there was very little reaction in the pre-market futures. Durable goods orders were unchanged following October's +2.8% but removing defense-related orders it was down -1.0%. Nondurable goods shipments declined -0.4%, which continues a string of monthly declines this past year.

Economic forecasts for the U.S. continue to get ratcheted lower and about the only thing the Fed can hang its hat on is employment data. This morning's ADP report showed employers added 257K jobs in December, which was much stronger than the 215K expected by economists. November was revised slightly lower from 217K to 211K. The majority of the added jobs were in the service sector by a factor of 10-to-1 (234K in service sector vs. 23K in goods-producing sector). How much of those jobs were temporary holiday-related jobs can't be known but we'll find out next month.

The minutes for the last FOMC meeting were released this afternoon and they showed a nervous Fed. While the vote to raise rates +0.25% was unanimous, it was by no means without a lot of doubt. Some FOMC members said the vote was a close call for several because of their concern about inflation data. While they publicly say they're "reasonably confident" that inflation will rise towards the Fed's 2% target rate (although most want to see higher inflation), they are secretly worried about deflationary pressures knocking inflation down. Some are worried that tightening at this time could be a mistake since they believe risks that inflation could stay low "remained considerable."

The consensus view of Fed members is that the continuation of the decline in oil prices in the 4th quarter "was likely to exert some additional transitory downward pressure on inflation in the near term." Gotta love their language. And by "transitory" I guess we need to understand how long transitory is -- oil has been declining for more than two years but I guess it's still a "transitory" phenomenon. Some members are starting to question this by noting the persistent weakness in energy prices is "imposing important downside risks to the inflation outlook." Ya think? Bottom line is that an uncertain Fed makes for an uncertain market because it makes it harder to judge what the Fed will do in the future and the market hates uncertainty.

That uncertainty, whether it be Asia or Europe related, or simply worry about what the Fed will or won't do to help the market, I mean economy, has registered this week in the selling we're seeing. It's becoming more difficult to justify the high price valuations when we see so many signs of slowing in the economy and in corporate earnings. It's still arguable about whether or not we've seen THE top of the bull market from 2009 but certainly it's getting harder to justify why the market should start another rally leg to new highs this year. Never say never and we'll use the charts to tell us when "never" should be wiped off the mouths of the bears.

I'll continue to use the SPX weekly chart to show the bullish potential for a choppy rally higher into April/May of this year and potentially make it up the 2200 area. I don't have a lot of faith in this possibility since it's hard to justify why the market should be able to rally this year but from a pattern perspective I have to acknowledge the possibility. In other words, my opinion of the fundamental reasons why the market should or should not do something takes a back seat to what price action tells us. And the choppy pullback from November can easily be interpreted as a bull flag and as such we have to respect the upside potential out of this pattern. I believe a continuation of the rally would be inside a rising wedge pattern based on how the rally progressed off the August low but it's still too early to tell. For the bullish scenario the bulls need to do something here and break out of the bull flag. The bearish interpretation of the choppy decline off the November high is a very bearish wave count that calls for a strong decline (another flash crash kind of move). A drop much lower, such as below 1970, could usher in much stronger selling.

S&P 500, SPX, Weekly chart

The bull flag pattern is shown more clearly on the daily chart below, the bottom of which is currently near 1972. That remains a downside target for the current leg down from the December 29th high but a short-term pattern for the leg down suggests we could get at least a bounce correction at any time. I show a bounce back up to close Monday's gap down (at 2043.94), possibly completing by Monday, but that's a lot of points to cover in 3 days. However, we all know how fast a short-covering rally can move and until SPX breaks below 1970 I'd be careful about being short here.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2082
- bearish below 1970

The 60-min chart shows the expectation for a 3-wave bounce correction off this afternoon's low. It's possible we'll see a quick spike down to 1972 to tag the trend line along the lows from November-December but with the bullish divergence against Monday's low I think it's better to be thinking about buying support rather than chasing it lower here. Assuming we'll get a bigger bounce I'll then be looking for the potential to reach the 2040 area where it would test price-level S/R (2040), back-test its broken uptrend line from September-December (2037), retrace 62% of the decline from December 29th (2042) and close Monday's gap (near 2044). That's a lot of resistance and a good reason to short it there if reached. If it bounces up to that area and rolls over there's a good chance the next decline will be very powerful (and therefore a good ride for the bears). Just keep in mind the upside potential...

S&P 500, SPX, 60-min chart

The DOW has broken below its trend line along the lows from November-December, currently near 17070, but it's holding support at the bottom of a parallel down-channel for its pullback from November, as well as price-level S/R near 16900. Like SPX, it's a good setup for at least a bounce correction and a rally up to 17425 would close Monday's gap and back-test its broken uptrend line from August-December. Slightly lower, near 17394, is where it would retrace 62% of its decline from December 29th. Other than a brief poke below this afternoon's low we should not see much lower before a bounce correction but if this afternoon's low at 16817 is broken and not quickly recovered it could turn into a much stronger decline right from here. For the bulls, it takes a rally above the December 29th high at 17750 to turn things bullish (in which case I'd be looking for something similar to the rising wedge pattern shown on the SPX weekly chart above).

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 17,750
- bearish below 16,900

Yesterday I was looking at the Nasdaq and thinking bearish for today, which turned out to be correct. On Monday it gapped down below its uptrend line from October 2011 - November 2012 and on Tuesday it jumped up in the morning to back-test the line. The selling following the back-test looked like a bearish kiss goodbye and suggested more selling today. Now that we got a new low for the NAZ it's looking like a bullish setup if the buyers jump back in here. The pullback from December 2nd is a 3-wave move with two equal legs down at 4811.81, which was achieved today. It's possible we have an a-b-c pullback correction that will now be followed by a new rally, one which will take us to a new high. A rally above 5010, above Monday's gap close at 5007, would have me leaning more bullish but for now I think the downside risk is greater than upside potential. The triple top/H&S pattern formed since November's high has a downside objective near 4610, close to its uptrend line from April-October 2014.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 5010
- bearish below 4811

The RUT's pattern for the decline from December 29th is what had me thinking we'd get another leg down today and now it's looking like a completed 5-wave move (maybe with one more quick low Thursday morning). That sets it up for at least a bounce correction. It's been a weaker index so the first warning sign for bears would be if the RUT starts leading to the upside. But if the bounce (assuming we'll get one) remains weaker than the others I'll be looking for the 1120-1125 area for a reversal back down, which will hopefully set up by next Monday. A rally above 1140 would have it looking more bullish.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1161
- bearish below 1080

Bonds rallied strong today, which of course dropped yields and the 10-year yield declined -3.1% to 2.177%. Below 2% is when the market will realize the Fed has lost the battle over rates. But for that to happen we'll need to see TLT (20+ year Treasury bond ETF) rally out of its sideways triangle that it's been in since the June 2015 low and August high. Today it ran up to its downtrend line from January-August and if it can break that downtrend line and climb above its December 11th high at 124.10 it would be a bullish statement. But bond bulls have their work cut out for them to get through several layers of resistance, which shouldn't be hard if the stock market is declining and traders rush to the perceived safety of Treasury bonds.

20+ Year Treasury ETF, TLT, Daily chart

The BKX weekly chart below gives a big-picture view of its pattern since its October 2011 low. There's a trend line along the highs from April 2010 - March 2014 and it's where the rally into June-July highs was stopped (with just a minor poke above the line). A parallel line was then attached to the October 2013 low and you can see how it supported pullbacks since then (with a minor poke below the line in August and September. Today's decline has BKX back down to this uptrend line, near 70, and if it breaks on a weekly closing basis it would tell us THE top is in place. In the meantime we'll see if 70 holds as support for at least a bounce.

KBW Bank index, BKX, Weekly chart

The Transports have been providing a clear warning sign for the bulls since the index topped out in November 2014. Each minor new high in the first half of 2015 for the DOW was not matched by the TRAN, which was a reflection of the deteriorating economy. It was one of the first indexes to drop below its August low, a feat not yet accomplished by the other indexes. Care to wager a bet about whether or not the DOW will follow? But the TRAN could be nearing stronger support at its 200-week MA, near 7110 this week. A little lower, near 7000, is its uptrend line from March 2009 - October 2011. A break below 7000 would obviously be more bearish but watch for support if tested. This week's decline has it below the bottom of a parallel down-channel for last year's decline, near 7300 on Friday (today's close was 7217). The bottom of the down-channel supported the decline into the December 18th low so this week's break is potentially important.

Transportation Index, TRAN, Weekly chart

The U.S. dollar's bounce off the December 9th low would achieve two equal legs up at 99.97 and this morning's high at 99.75 is only 22 cents away from that projection. Above that is another price projection for its rally from August, at 101.32, but I'll be looking for that to be achieved only if the dollar can get above 100. The larger consolidation pattern following the high last March is still a big question mark but until I see evidence to the contrary I'll continue to look for a large sideways consolidation through the first half of 2016 before starting the next rally (102-105 target zone before completing the rally off the 2011 low and then start a more serious decline).

U.S. Dollar contract, DX, Weekly chart

I continue to see at least a little more upside for gold but it achieved a projection at 1089.70 for two equal legs up in a 3-wave bounce off the December 17th low and could turn back down from here. If the sellers stay away I see additional upside potential to 1116-1118 and then further upside potential to 1135-1142. Above 1142 would be more bullish but for now I'm only looking for a bounce correction before heading lower again.

Gold continuous contract, GC, Daily chart

Oil continues to struggle to get off the mat as each time it lifts its head it gets knocked down again. But with a bullish descending wedge pattern, and the bullish divergence helping confirm the likely bullish pattern, it's looking like we should expect a rally soon. The bottom of the wedge is currently near 33.80, which is only 60 cents above its January 2009 low at 33.20, and the COT (Commitment of Traders) report shows short interest down where we've seen previous tradeable lows for oil. I would expect to see a bottom soon and a rally at least back up to the top of the descending wedge, currently near 41.60, and obviously it would be more bullish with a breakout from the wedge. But as depicted on its weekly chart below, I think the higher-probability pattern is for it to get only a bounce in the descending wedge and then make one more new low later this spring before starting a more serious rally.

Oil continuous contract, CL, Weekly chart

There is nothing market moving in tomorrow's economic reports so we'll once again be reacting to whatever news comes in from overseas. If it's a relatively quiet overnight session we could see the market start at least a larger bounce.

Economic reports


The market has been weak since the December 29th high but the only thing that has happened is a move back down within a possible bullish continuation pattern (an a-b-c pullback for the techs and a bull flag for the blue chips). It's not a good time to get aggressive on the short side since the setup is looking good for at least a bounce into early next week. If we get the bounce it will then provide a good setup to get short for a stronger decline but we'll still need to acknowledge the potentially bullish setup for a new rally to get started and run higher over the next few months.

It doesn't matter whether we believe the fundamentals call for a market decline or rally since this market has ignored fundamentals for a long time. But worry over the Fed's lack of "care and nurturing" of this market has many concerned and it's likely part of the reason for some of the selling. The fundamentals do support the bears better than the bulls and without a super-accommodative Fed the bulls should be playing defense. While I don't recommend getting aggressively short yet I do prefer the short side over the long side. I'd get more aggressive on the downside with breaks below the key levels on the charts. But for the short term (into next week) I'm looking for a bounce to set up a better short play.



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Good luck and I'll be back with you next Wednesday.

Keene H. Little, CMT

In the end everything works out and if it doesn't work out, it is not the end. Old Indian Saying

New Option Plays

Bullish Breakout In Progress

by James Brown

Click here to email James Brown

Editor's Note:

In addition to tonight's new candidate(s), consider these stocks as possible trading ideas and watch list candidates. Some of these stocks may need to see a break past key support or resistance:

Bearish ideas: FDX, PH, MD, JBHT, WDC, WHR, DVA, ADSK,

Bullish ideas: DLR, KMB, OA, AVB, HRL


Dollar Tree, Inc. - DLTR - close: 80.52 change: +0.54

Stop Loss: 76.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 3.6 million
Entry on January -- at $---.--
Listed on January 06, 2016
Time Frame: Exit PRIOR to February option expiration
New Positions: Yes, see below

Company Description

Trade Description:
Last year DLTR shares delivered a very bumpy ride for investors but the stock did manage to outperform. 2015 saw the S&P 500 index flat with a -0.7% loss. The NASDAQ gained +5.7%. Yet DLTR added +9.7%. More importantly DLTR has been showing relative strength THIS year and appears to be breaking out past resistance.

DLTR is part of the services sector. According to the company, "headquartered in Chesapeake, VA, Dollar Tree is the largest and most successful single-price-point retailer in North America, operating thousands of stores across 48 contiguous U.S. states and five Canadian provinces, supported by a solid and scalable logistics network. At Dollar Tree, we are committed to serving the best interests of our shareholders. We seek to enhance shareholder value not only through exceptional business performance and practices, but also through responsible and effective communication. To help put Dollar Tree, Inc.'s financial performance into perspective, our Investor Relations site provides the latest company information relevant to the individual."

One of the big stories for DLTR last year was its $9.5 billion acquisition of rival Family Dollar (FDO). This more than doubled DLTR's stores and more than doubled its annual sales.

DLTR's earnings results have been mixed and the stock has seen some big moves on its recent reports. On September 1st DLTR reported their Q2 results that missed estimates and guided lower. Shares plunged. Fortunately for investors DLTR bottomed in the $60-62 area in the October-November time frame.

On November 24th DLTR reported its Q3 results, which looks like their first full quarter as a combined company (with Family Dollar). Earnings were $0.38 a share. That missed analysts' estimates. Revenues were up +136% from a year ago thanks to the merger and above expectations at $4.95 billion. Management lowered their Q4 guidance but raised their full year 2016 revenue guidance above Wall Street estimates. Investors bought this news and shares of DLTR have been outperforming the broader market for the last several weeks.

DLTR's CEO Bob Sasser commented on his company's Q3 performance, "I am pleased with our Company's third quarter performance. Dollar Tree delivered same-store sales of 2.1%, which represented our 31st consecutive quarter of positive same-store sales. This was against a 5.9% comp from the prior year, our strongest quarter of 2014. While not included in our comp calculation, Family Dollar delivered positive same-store sales of low to mid-single-digits, as a percent, each month during the quarter." Sasser added, "Our integration project is on schedule and we are on track to achieve our stated synergy goals. Today, I am even more enthusiastic about the long-term opportunity this merger provides for our customers, our suppliers, our associates, and our shareholders."

In early December analyst firm RBC upgraded DLTR to one of their "top picks" and raised their price target on the stock to $90. RBC believes DLTR can achieved +20% to +25% growth in 2016-2017. Analyst firm Cantor Fitzgerald is also bullish on DLTR. A couple of weeks ago they issued an note on the company saying, "We expect a re-acceleration of SSS growth and believe there is opportunity for the company to realize cost synergies from the Family Dollar acquisition that doubles the $300 million guidance by year three." Cantor upped their DLTR price target from $85 to $105.

Currently the point & figure chart is bullish and forecasting at $90.00 target.

DLTR spent a good chunk of December consolidating sideways in the $75-80 zone. Now the stock is breaking out, which is impressive considering the stock market's weakness. The S&P 500 is already down -2.6% in 2016 and the NASDAQ is down -3.4%. DLTR is up +4.2% year to date and broke through resistance near $78.50 and now the $80.00 level. Tonight we are suggesting a trigger to buy calls at $80.85.

Trigger @ $80.85

- Suggested Positions -

Buy the FEB $80 CALL (DLTR160219C80) current ask $3.40
option price is a current quote and not a suggested entry price.

Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.

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

Daily Chart:

Weekly Chart:

In Play Updates and Reviews

Stocks Plunge On A Storm Of Bearish Headlines

by James Brown

Click here to email James Brown

Editor's Note:

Stocks plunged around the world thanks to a parade of bearish headlines. Disappointing economic data from China and then from the U.S. helped set the tone. The biggest bearish surprise today was the story that North Korea had allegedly tested a hydrogen bomb, which is several hundred times more powerful than a normal nuclear weapon.

The Chinese market was an exception and actually posted a gain today. Meanwhile there is growing skepticism that N. Korea had actually tested a hydrogen bomb when data suggests it was just a normal nuke. Unfortunately the initial headline already did the damage to stocks.

Our new RRGB trade was triggered. IONS has a new trigger.

Current Portfolio:

CALL Play Updates

Harris Corp. - HRS - close: 87.37 change: -0.80

Stop Loss: 84.90
Target(s): To Be Determined
Current Option Gain/Loss: -26.4%
Average Daily Volume = 927 thousand
Entry on January 05 at $88.15
Listed on January 04, 2016
Time Frame: Exit PRIOR to earnings in early February
New Positions: see below

01/06/16: Wednesday's market drop pressured HRS lower. Fortunately traders bought the dip twice in the $87 region. If the market will cooperate HRS is poised to run. If not we could see shares dip toward the $85-86 region.

Trade Description: January 4, 2016:
Out of the thousands of publically traded companies out there only a few have been around for over 100 years. A couple of weeks ago HRS celebrated its 120th anniversary.

HRS issued a press release to mark the achievement. Here's an excerpt: "Founded in the back room of an Ohio jewelry store in December 1895, Harris grew from a tiny printing press company into a top 10 defense contractor with $8 billion in annualized sales, 22,000 employees, customers in 125 countries, and a diverse portfolio of technologies that connect, inform and protect the world. Harris is the longest-thriving major defense contractor and one of 398 publicly held companies still in existence for 120 years or longer - including GE, CVS, Coca-Cola, Pfizer, P&G, and J.P. Morgan."

Today HRS is in the technology sector. They are considered part of the communication equipment industry. According to the company, "Harris Corporation is a leading technology innovator, solving our customers' toughest mission-critical challenges by providing solutions that connect, inform and protect. Harris supports customers in more than 125 countries, has approximately $8 billion in annual revenue and 22,000 employees worldwide. The company is organized into four business segments: Communication Systems, Space and Intelligence Systems, Electronic Systems, and Critical Networks."

Last year HRS ended 2015 on a strong note. The month of December saw HRS win several government contracts worth more than $1 billion. Meanwhile analysts are bullish on the stock. Goldman Sachs has a buy rating on HRS. Cowen recently upped their price target to $102 and said it was one of their best trading ideas for 2016.

Technically the stock has been showing relative strength. Last year HRS outperformed the broader market with a +20% gain. The positive news about the company's new contract wins produced a bullish breakout past major resistance at $85.00 in mid December. Today investors bought the dip near short-term support at its 10-dma. HRS displayed relative strength today too with a +0.8% gain. If this bounce continues we want to hop on board. Tonight we are suggesting a trigger to buy calls at $88.15.

- Suggested Positions -

Long FEB $90 CALL (HRS160219C90) entry $2.65

01/05/16 triggered @ $88.15
Option Format: symbol-year-month-day-call-strike

Ionis Pharmaceuticals - IONS - close: 58.72 change: -2.22

Stop Loss: 56.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.6 million
Entry on January -- at $---.--
Listed on January 02, 2016
Time Frame: Exit PRIOR to February option expiration
New Positions: Yes, see below

01/06/16: Biotech stocks underperformed today with the IBB biotech ETF falling -1.78%. IONS was hit even harder. Shares dropped toward technical support at its 200-dma near $56.70 before paring its loss. IONS was down -6.7% at its worst levels of the session. The stock trimmed that loss to -3.6%.

We are not giving up on IONS. Today's high was near round-number resistance at $60.00 and its 10-dma (also near $60). Tonight we are adjusting our bullish entry trigger to buy calls from $63.20 down to $60.35. We will move the stop loss down to $56.75, just under today's low.

Trade Description: January 2, 2016:
Biotech stocks had a volatile year, especially after the group peaked in July 2015. The IBB managed to deliver a +11% gain for the year thanks to strength among some of its bigger cap names. IONS closed virtually flat for the year (down -19 cents for all of 2015). The stock has been showing relative strength recently and looks poised to sprint past its peers.

IONS is in the healthcare sector. They are part of the drug and biotech industry. The company was previously known as ISIS pharmaceuticals. Unfortunately the rise of the radical Islamic terrorist group known as ISIS has tarnished the name. A couple of weeks ago ISIS changed its name to Ionis. Here's a bit from the company press release:

"Isis Pharmaceuticals, Inc. today (December 18th) announced that the company has changed its name to Ionis Pharmaceuticals, Inc. Ionis (pronounced "eye-OH-nis") Pharmaceuticals is an original name that the Company has chosen to represent its innovative culture and heritage as both the pioneer and leader in the RNA-targeted therapeutic space for the past 26 years."

Now here is the company's description: "Ionis is the leading company in RNA-targeted drug discovery and development focused on developing drugs for patients who have the highest unmet medical needs, such as those patients with severe and rare diseases. Using its proprietary antisense technology, Ionis has created a large pipeline of first-in-class or best-in-class drugs, with over a dozen drugs in mid- to late-stage development. Drugs currently in Phase 3 development include volanesorsen, a drug Ionis is developing and plans to commercialize through its wholly owned subsidiary, Akcea Therapeutics, to treat patients with familial chylomicronemia syndrome and familial partial lipodystrophy; IONIS-TTRRx, a drug Ionis is developing with GSK to treat patients with all forms of TTR amyloidosis; and nusinersen, a drug Ionis is developing with Biogen to treat infants and children with spinal muscular atrophy. Ionis' patents provide strong and extensive protection for its drugs and technology."

Regular readers know that we feel biotech stocks are aggressive, higher-risk trades. A lot of biotech companies are relatively small and only have one or two treatments in development, which make them binary trades. You can win big or lose big depending on the approval process of their treatment. There is a lot of headline risk. There is still headline risk with IONS but the company's relatively deep pipeline of drugs makes IONS a stronger play. You can view IONS' pipeline here.

Shares of IONS surged through several layers of resistance in early November on a better than expected Q3 earnings report. Since that big rally the stock has been consolidating lower. That changed in mid December when traders bought the dip near its 100-dma. Investors have been buying the dips every since. IONS displayed relative strength on Thursday with a +0.99% gain. The point & figure chart is bullish and forecasting at $74.00 target.

We would like to see some follow through higher. Tonight we are suggesting a trigger to buy calls at $63.20. Plan on exiting prior to February option expiration.

Trigger @ 60.35 *new entry trigger*

- Suggested Positions -

Buy the FEB $65 CALL (IONS160219C65)

Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.

01/06/16 Entry point update - Adjust the entry point to buy calls from $63.20 down to $60.35. Move the stop loss down to $56.75
Option Format: symbol-year-month-day-call-strike

PUT Play Updates

Red Robin Gourmet Burgers - RRGB - close: 59.30 change: +0.38

Stop Loss: 62.15
Target(s): To Be Determined
Current Option Gain/Loss: -28.0%
Average Daily Volume = 244 thousand
Entry on January 06 at $58.40
Listed on January 05, 2016
Time Frame: Exit PRIOR to earnings in mid February
New Positions: see below

01/06/16: RRGB delivered a frustrating session if you were bearish. The broader market crashed at the opening bell with a huge gap down. All of the major indices closed with losses today. It was a very widespread sell-off. RRGB did open lower. Our suggested entry point to launch bearish positions was $58.40. Shares gapped down at $58.40 but that was the low of the day. RRGB immediately bounced but saw the bounce fail at short-term resistance near $60.00. This all occurred in the first 60 seconds of trading. RRGB spent the rest of the day just churning sideways and closed the session up +0.6%.

Our bearish trade on RRGB is open but I am not suggesting new positions at current levels. Wait for shares to breakdown below $58.40 before initiating positions.

Trade Description: January 5, 2016:
The second half of 2015 had to be frustrating if you were bullish on RRGB. The company has been outperforming many of its peers in the restaurant industry but shares still got crushed. RRGB delivered a -19.7% decline for all of 2015 but fell -33.5% from its 2015 peak near $92.00 a share.

RRGB is in the services sector. According to the company, "Red Robin Gourmet Burgers, Inc. (www.redrobin.com), a casual dining restaurant chain founded in 1969 that operates through its wholly-owned subsidiary, Red Robin International, Inc., is the Gourmet Burger Authority®, famous for serving more than two dozen craveable, high-quality burgers with Bottomless Steak Fries® in a fun environment welcoming to guests of all ages. In addition to its many burger offerings, Red Robin serves a wide variety of salads, soups, appetizers, entrees, desserts and signature Mad Mixology® Beverages. Red Robin offers a variety of options behind the bar, including its extensive selection of local and regional beers, and innovative adult beer shakes and cocktails, earning the restaurant the 2014 VIBE Vista Award for Best Beer Program in a Multi-Unit Chain Restaurant. There are more than 500 Red Robin restaurants across the United States and Canada, including Red Robin Burger Works® locations and those operating under franchise agreements."

One of the biggest stories last year was the decline in crude oil. Lower crude oil means lower gasoline prices at the pump. Many were expecting lower gas prices to fuel a jump in consumer spending. Unfortunately that increase in spending never really showed up.

The data has shown a slowdown in restaurant sales. Black Box Intelligence, a research firm, publishes monthly statistics on the restaurant industry. Black Box said industry-wide sales growth fell from +1.8% in Q2 2015 to +1.5% in Q3 (no word yet on Q4). Traffic stalled as well. In early November Black Box Intelligence reported that same-store sales growth for the restaurant industry went negative for the first time since July 2014 with a -0.2% drop in October 2015. Traffic plunged -2.8%. There was a bounce in November with comp sales up +0.5% but traffic fell another -1.7%.

That is the environment RRGB has been operating in. They have been beating a lot of their peers with stronger comparable-store sales but RRGB has not been immune to the slow down. Looking at RRGB's last four quarterly reports they have beaten Wall Street's earnings estimate the last three quarters in a row. However, they have missed analysts' revenue estimates three out of the last four quarters. Revenue growth has slowed from +16.6% to +16% to +14.4% and down to +6% in their most recent announcement. Comps started last year at +3.6% and dipped to +2.9% before bouncing back to +3.5%.

Investors don't seem to care that RRGB's comparable store sales are beating the industry. Traders have sold the stock hard following the last two earnings reports and shares have continued to sink under a bearish trend of lower highs. The last three weeks of December saw RRGB consolidating sideways in the $60.00-65.00 range. The recent breakdown below support at $60.00 has produced a new quadruple bottom breakdown sell signal on the point & figure chart, which is currently forecasting a target near $54.00 (and could go lower).

Shares of RRGB displayed relative weakness today. The intraday bounce attempt failed and shares lost -1.7% on the session to close at new 52-week lows. The stock is poised for a drop toward the $50-55 zone. Tonight we are suggesting a trigger to buy puts at $58.40.

- Suggested Positions -

Long FEB $55 PUT (RRGB160219P55) entry $2.50

01/06/16 triggered @ $58.40
Option Format: symbol-year-month-day-call-strike