Option Investor

Daily Newsletter, Thursday, 2/4/2016

Table of Contents

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

Market Wrap

Weak Dollar Supporting Market

by Thomas Hughes

Click here to email Thomas Hughes
A dramatic fall in dollar value is helping to support the market; gold prices are up, oil is holding above $30 and the impact of currency on earnings expectations is diminished.


The dollar has fallen sharply this week as global slowing and iffy US data weighs on FOMC expectations. This move is, at least in the near term, helping to support the market. The price of gold is rising and lifting the entire complex, oil prices are holding above $30 and supporting the energy sector, and the impact of currency exchange on earnings expectations is lessened. Whether or not this will continue depends on future data (NFP tomorrow) and the actions of central bankers in the coming months.

Market Statistics

The international markets were mixed as ours were waking up. In Asia, Japan closed lower by nearly -1%, both Chinese indices made gains greater than 1%, possibly affected by the Chinese New Year holiday which begins on Monday. In Europe wavering oil prices and weaker than expected earnings from Credit Suisse left those indices mixed but mostly flat across the region.

Early futures trading had our indices opening mixed as well but early weakness in oil prices helped to send them down by about -0.5% going into the 8:30 release of economic data. After the data futures trading slipped a little further, up to and until oil prices started to shoot higher. By the time the opening bell sounded the markets were indicated to open flat and this held for the first 5 or 6 minutes.

Between 9:45 and 10AM the indices fell below break even, bounced off their respective support levels, 1900 for the SPX, and then moved higher in tandem with a 3% jump in oil prices. The rally looked pretty strong at first but did not hold, a late morning reversal in oil prices is to blame. The rest of the day saw the market hover around break even, neither touching the early low or high, and held those levels into the close leaving the indices just above break even for the day.

Economic Calendar

The Economy

Lots of data today, and little good. The first bit released this morning was the Challenger Gray & Christmas report on planned layoffs. The number of layoffs jumped 218% in January, up more than 50,000 from December's report to hit 75,114. This is the highest level since July 2015, the highest January total since 2009 and 42% higher than last year at this time. The cuts were led by the energy and retail sectors which added more than 20,000 each. The number of cuts in the energy sector is the highest level for the sector since January last year. The cuts in the retail sector were broad but led by Wal-Mart (planning to close 269 stores) and heavily affected by the shift to online sales. The top three reasons given for cuts are restructuring, oil prices and store closings. There were 5 job cuts associated with the Flint, Michigan H2O scandal.

Now for some perspective. First, this month's gain in cuts comes on the heels of a 15 year low set last month. While high, this month's cuts are largely seasonal and affected by a shift toward cutting end of year jobs AFTER the holiday's, rather than during. Taking this into account the average over the past 2 months is closer to 49,000, slightly above the average monthly job cuts in 2015 (about 48,750). In addition to planned job cuts Challenger also reports on planned hirings. Planned hirings in January totaled 8,362, including 858 jobs in the retail and energy sectors. In 2015 job cuts ran near a record high, but were outpaced by job openings.

Initial claims for unemployment rose by 8,000 from a downward revision of -1,000 to hit 285,000. The 4 week moving average of claims rose 2,000 from a mild revision to hit 284,750. Looking at the charts, the adjusted number of claims is elevated from last summer but remains low by historical standards, near the long term lows and consistent with labor market health. That being said, the red flag raised by not adjusted claims in last week's data is still flying and will need to be monitored. On a not adjusted basis the number of claims rose by +5.5% versus an expected 2.4% and are now about 2% above levels seen this time last year. On a state by state basis Kansas led with an increase of only 65 new claims while California led with a decline in claims of -21,269.

Continuing claims fell by -18,000 to hit 2.22 million. This is down slightly from the 8 month high set last week but remains low by historical standards and consistent with labor market health. The four week moving average continues to rise however, gaining a little over 5,000 to hit 2.52 million. Last weeks continuing claims were revised higher by 5,000.

The total number of jobless claims fell by -26,783 to hit 2.702 million. This is in line with historical expectations and should lead to a drop in claims over the next 2 months. On a year over year basis total claims are down -4.5%, less than the -8 to -10% I've been tracking over the past 2 years but still down and consistent with labor market health. Going forward we'll need to keep an eye on this as well as initial and continuing claims, if the data refuses to return to trend and remains elevated we could be in for some trouble.

Q4 productivity and labor costs were released at 8:30AM. Productivity fell by -3%, more than the expected -1%, while labor costs rose by 4.5%, also ahead of expectations. Within the report output rose by 0.1% while hours worked rose 3.3%. On a year over year basis 4th quarter productivity is up 0.3% while the average quarterly gain is just over 0.6%. Hourly compensation rose 1.3%. I think this data is a good example of the old adage, what's good for Mainstreet is not good for Wall Street; cost are going up but Americans are working more and getting paid more. Third quarter productivity and cost were revised up and down by 0.1% respectively.

Factory orders was released at 10AM and came in a little worse than expected. The headline number, new orders, fell by -2.9% versus an expected -2.6%. The previous month was revised lower by -0.5% to -0.7%. Shipments and unfilled orders also fell, -1.4% and -0.5%, while inventories rose by 0.2%.

There is some important data coming out tomorrow that will likely move the market; NFP and unemployment, along with hourly earnings and average workweek. Based on the ADP figures from yesterday the NFP could stronger than the 188K predicted by the analysts. A strong number I think could be a good and bad thing for the market at this. At first blush it will point to ongoing recovery in the labor market and strengthening of the consumer, on the flipside it could lead to increased expectation for another rate hike. Unemployment levels may rise due to the high level of job cuts revealed today.

The Oil Index

Oil prices wavered in the early pre-market session as a weakening dollar and expectations for an OPEC led production cut wrestled for dominance with high levels of supply and production. WTI was first above $32, then below $32. After the opening bell prices shot higher with WTI gaining close to 3% to trade above $33 and then later fell back below $32 to close with a loss of nearly -2% for the day. The weaker dollar should help to support prices into the near term, expectations for a production cut may help but I think may leave price open to correction as we saw in the later part of today's session. Current resistance target for WTI is just below $35 and may keep oil prices contained into the near term.

The oil sector moved higher on the back of oil prices, gaining a little over 1% during the early part of the day but hit resistance at the 1,000 level, fell back and closed with a small loss. The sector is trying to balance poor earnings and poor earnings expectations with the OPEC/Russia rumors, the recent bounce in oil prices and a weaker dollar.

If oil prices are able to maintain current levels and/or move higher earnings projections for the sector in 2016 could begin to bottom if not reverse. The caveat is that oil prices have been extremely volatile and could easily fall back to support, near $30, especially if/when expectations for an OPEC/Russia deal to cut production evaporate. The indicators are bullish and point to a continued test of resistance but have yet to show real strength, until then we may see it range between 950 and 1000 with a chance for a move to 900 should bearish sentiment reassert itself. . . and this may happened soon if Obama is able to get traction for his proposed $10 per barrel tax on US oil.

The Gold Index

The weaker dollar is helping to lift gold prices as well. Gold rose more than 1.25% in today's session to trade above $1150 for the first time in 3 months. Candle stick action over the past few days looks strong, momentum could easily carry prices up with next target for resistance near $1175. Risks at this time are stronger data points leading to increased expectation for another FOMC rate hike as well as the ECB's and BOJ's apparent willingness to increase QE.

The gold miners are rising on the back of gold prices. Higher prices mean higher profits and better margins, coupled with production that has been on the rise could lead to upside surprises in earnings, most likely in the next reporting season. Today the miners ETF GDX gained more than 5%, gapped higher, above the $15.75 resistance line and is now approaching the top of the 8 month trading range near $16.50. The indicators are on the rise, momentum is strong, and are pointing to at least a test of resistance if not a break above it. A break above $16.50 may find resistance at $17, next target above that is near $17.50. The caveat at this time is that the gap opened today may be closed before the ETF moves higher.

In The News, Story Stocks and Earnings

The Dollar Index fell another -1% in today's session and is now approaching the $96 support target. Based on the extremely large black candles which formed yesterday and today, along with bearish crossovers in both indices and rising downside momentum it looks like this level could be hit very soon, perhaps as early as tomorrow. A Fibonacci Retracement of the rally from the August low to the December high have today's closing price sitting right on the 50% line, with the lower shadow extending beyond. This level could provide support but a I expect a pretty firm test at least before consolidation or reversal can take place.

ConnocoPhillips reported quarterly results before the bell. The company is suffering from low oil prices and reported a miss on revenue and earnings, the quarterly loss of $2.78 is a little of 9000% larger than last year at this time, and 400% larger than predicted. Along with the loss the company reported an updated capex plan for next year, lower, and also lowered its dividend its dividend by roughly 66%. The news shocked investors and may be a sign of more dividend cuts in the sector. Shares of the stock fell more than -8% with weakening indicators and is now trading just above the 12 year lows set last week.

A couple of the big name retailers reported before the bell as well, namely Kohls and Ralph Lauren. Both companies reported misses on revenue, Ralph Lauren at least beat on the earnings end. Both also lowered full year guidance. Kohl's fell more than -8%, Ralph Lauren more than -22% both weighing on the entire sector. The Retail Sector SPDR fell in the early part of the session, losing about a half percent, before buyers stepped in to support prices. If the rest of the sector is as weak as these two I think we can expect to see the ETF retest support near $37.50.

LinkedIn reported after the bell, beating EPS estimates. The bad news is that revenue fell short of expectations and led to a lowering of first quarter and full year 2016 earnings guidance. Shares of the stock fell nearly -25% on the news and are now trading near 2 year lows.

The Indices

The indices tried to rally today but just couldn't hold the gains. The weakness in the dollar is helping to support the market, but volatility in oil prices remains and is a strong driver of day to day pricing. Today's action was led by the Dow Jones Transportation Index. The index gained a little more than 3.15%, created a long white candle, closed at the high of the day and broke above two resistance targets; if we can expect the transports to lead the market higher, as they did lower, this could be the sign it's about to happen. Both indicators are pointing higher, consistent with a rising market and confirming the break above resistance. Stochastic has yet to show strength, it is still in the middle of its range, but MACD is on the rise and has reached what is at least a 2 year extreme dating back to the October '14 bottom. Following that bottom the index made a gain of roughly 20% within only 3 months.

The next biggest gainer in today's session is the Dow Jones Industrial Average with a gain of 0.49%. The index did not make an overly bullish move as did the transports but nonetheless appear to be moving higher. Today's candle was halted at resistance, just below the short term moving average and the 16,500 level, but the indicators remain bullish and on the rise so a test of the resistance is likely.

The third biggest gainer in today's session is the S&P 500 which closed with a gain of 0.15%. The broad market index was able to hold support in the face of wildly fluctuating oil prices creating a doji like candle with prominent upper and lower shadow. Today's action appears to be confirming support along the 1,900 level, with a little oil driven indecision, and comes with bullish indicators. Both MACD and stochastic are on the rise and suggest the index will continue to move higher, at least up to the short term moving average near the 1,945 level.

The smallest gain in today's session was made by the NASDAQ Composite. The tech heavy index made a gain of only 0.12%, capped at the 4,550 resistance line and created a doji like candle. This index looks the weakest of all and may be in for a test of support, LinkedIn's results are sure to have an impact on it tomorrow. The indicators are bullish but momentum is in decline and a bearish crossover on stochastic may be pointing to such a test.

Something is building in the market. Looking at the SPX, DJI and COMP it may be nothing more than a consolidation of recent lows, looking at the DJT it looks like an extended rally is brewing. Whether or not it happens will come down to a couple of factors, deeply intertwined and circular, that boil down to this; earnings expectations.

Data will show strength or weakness in the economy. Strength or weakness in the economy will put spin FOMC expectations. FOMC expectations will drive the dollar. Dollar value will drive earnings across the broader market including the gold sector, the energy sector and those companies who have exposure to currency conversion. All of these will affect the earnings potential of the broad market. A Goldilocks number for the NFP is what we need, hot enough to support ongoing labor market recovery, not so hot that the FOMC has to raise rates again.

Today's action in the transport sector looks very promising but until the NFP is released, and we see some confirmations in other indices, I remain a little skeptical. As of this past week earnings expectations for 2016 were still falling, if positive for the year; when these estimates begin to rise I will feel more comfortable about long positions. I remain bullish for 2016, but cautious, oh so cautious.

Until then, remember the trend!

Thomas Hughes

New Option Plays

Newborn Medical Equipment

by Jim Brown

Click here to email Jim Brown

Editors Note:

One medical company is making life easier for the nurses in the neonatal intensive care units in hospitals today. However, while earnings are growing and revenue is creeping higher the shares of this company are struggling to maintain a pulse.


No New Bullish Plays


BABY - Natus Medical -
Company Description

Shares of BABY spiked higher on the 27th when they posted a 27% increase in earnings but revenue only rose +6.4% and failed to meet their projections. They guided for $100 million and came close at $99.951 million so rounded up they did hit their target. However, investors sold the stock almost immediately and the stock has continued slowly lower.

There is nothing wrong with the company. They are transitioning away from selling devices and systems as their primary revenue and more to supplies and services as a continuing revenue source. Once you sell a hospital a bunch of devices it will be years before they buy again. By moving into the supplies area they will develop a constant revenue stream as those supplies are consumed.

One of their products is called NicView that allows families and friends to view the babies over the Internet while they are in the neonatal intensive care units. More than 80 hospitals now have that installed.

They guided for Q1 to revenue of $86.5-$97.5 million, down slightly from Q4 and earnings of 34-35 cents. Full year revenue guidance was $445-$455 million and also down from the Q4 run rate. Earnings are good but that slowing revenue is a challenge.

Earnings are April 27th.

I like Natus as a company. I wish their stock was rising so I could play it on the upside. However, shares are struggling to hold over $34. If this level breaks the next support is in the $25 to $28 level.

With the biotech sector very weak and expected to get weaker I am afraid it is going to rub off on Natus and we will see that breakdown.

With a BABY trade at $33.50

Buy April $30 put, currently 80 cents. No stop loss because of the cheap option.

In Play Updates and Reviews

No Triple Digit Move

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Dow started the day with a +150 point gain but is sold off quickly to trade negative again. After swapping sides multiple time the index finally ended with a 79 point gain. It has been rare in 2016 for the Dow not to close well into the triple digits. Maybe the volatility is about to ease.

The dollar continued to decline and is now at a three month low. This is positive for all commodities and oil spiked in the morning but fell back into negative territory in the afternoon. Copper is approaching a two-month high at $2.15.

The biotech sector ($BTK) barely posted a 2 point gain and the sector is still under pressure. The close was -90 points off its highs.

Overall, the rally was lackluster with the Nasdaq 100 closing negative and the Composite gaining only 5 points. I would continue to be cautious ahead of the weekend.

Current Portfolio

Current Position Changes

AOS - AO Smith

The AO Smith call remains unopened.

FL - Foot Locker

The Foot Locker call remains unopened.

AMBA - Ambarella

The Ambarella put was stopped out.

Stop Loss Updates

Check the graphic above for any new stop losses in bright yellow. We need to always be prepared for an unexpected decline.

Original Call Recommendations (Alpha by Symbol)

AOS - AO Smith - Company Description


Still trading sideways in a volatile market. The position is still unopened.

Original Trade Description: February 1st

A.O. Smith manufacturers water heaters and boilers for distribution around the world. They also sell water treatment systems that are in high demand in emerging market economies.

They reported earnings last week of 90 cents that beat estimates for 85 cents. Revenue rose +2% to $639.4 million but missed estimates because of weakness in the housing sector in the USA. North American sales declined -3.9% to $413.7 million.

However, operating earnings rose +37.2% to $92.2 million because of higher pricing, higher overall demand and lower steel costs. Overall segment revenue of $1.7 billion rose +5%. This was due to higher commercial demand for boilers.

Sales in the rest of the world rose +14% to $232 million. That was powered by a 15% increase inwater heater demand, water treatment and air purification products in China. That is definitely a country that needs water treatment and air purification.

Very few companies are successful in selling to China but AO Smith is one of them.

The company bought back 329,000 shares in Q4 leaving 2.59 million to buy under the current buyback program. The company had $324 million in cash at the end of the quarter.

They guided for 2016 to earnings of $3.40-$3.55, which would be a 10% growth rate in earnings. They kept the 15% growth rate target for China in 2016.

Earnings are April 29th.

The stock bottomed on the January 29th market crash and have been moving steadily higher. Resistance is currently $70 followed by $79 from the December highs. I am recommending we enter a long call position with a trade over today's intraday high.

With an AOS trade at $70.45

Buy April $75 call, currently $3.30. Stop loss $64.85.

FL - Foot Locker - Company Description


Sideways move on no news. Position remains unopened until FL trades at $68.75.

Original Trade Description: February 3rd.

Foot Locker is a specialty athletic retailer with more than 3,400 stores in 23 countries and it a leading provider of athletic shoes. February is kickoff month for Foot Locker and they run a series of new ads on TV ahead of the March Madness.

This year the ads will feature comedian Kevin Hart in both Foot Locker and Kids Foot Locker promotions. In Q3 same store sales rose +8% and retailers for sports apparel reported a good holiday season. Foot Locker reports earnings on March 4th.

Nike and UnderArmour already reported strong earnings. UnderArmour reported a record quarter claiming accelerating sales of athletic footwear were growing market share and profitability. Nike reported earnings that increased 21.6% at 90 cents that were 5.1% above consensus. That was the 14th consecutive quarter that Nike has beaten estimates.

The country is currently undergoing a "social fitness" phenomenon with sales of sports watches and fitness training products exploding. Millennials, those born between 1980-2000, have changed the landscape of retail. They now represent 25% of the population. Millennials are far more health conscious than boomers and tend to try lots of different activities unlike boomers that stuck to 1 or 2 sports. Boomers played golf or tennis. Millennials are cyclists, runners, basketball players and any number of other active sports. They are not golfers. Each of these sports requires different shoes. This is where Foot Locker shines in providing a wide range of affordable shoes and athletic apparel.

Foot Locker should have a good quarter when they release earnings next month. With the Foot Locker commercials in February plus the Super Bowl and the build up to March Madness, investors will think of Foot Locker and shares should rise.

With a FL trade at $68.75:

Buy March $70 call, currently $2.65, initial stop loss $66.45

KR - Kroger - Company Description


Sharp drop on no news. Possible rotation. No change in the position.

Original Trade Description: January 28th

Kroger is a retail grocery chain with $108 billion in sales in 2014. In Q3, 2015 their same store sales comps rose +5.4% without factoring in gasoline. They have recently been adding service stations to their offerings. They operate 2,774 supermarkets, 148 with in store clinics, 786 convenience stores, 1,330 fuel centers and 326 Fred Meyer jewelry stores in the USA. In all they have more than 161.3 million square feet of operated retail space. They have 37 food-processing plants, 27 dairies, 6 bakeries and 36 distribution centers.

While most people know them as a grocery store they are much more. They operate those grocery stores under many name brands, more than two dozen, as a result of the acquisition of regional chains. They also operate multi-department stores like a small Walmart or Target.

They have more than 422,000 employees and operate in 34 states. They filled 175 million prescriptions in 2014 worth over $9 billion. Kroger earned $3.223 billion in profits in 2014.

Where Kroger is kicking butt is their new organic product lines. They are significantly cheaper than Whole Foods Markets (WFM), Fresh Market (TFM) and Sprouts Farmers Markets (SFM). They are able to compete with Walmart on organics and private label brands because they own their own food processing and distribution centers. They have dozens of store brands than encompass nearly every isle in the stores from frozen pizzas, vegetables, fruit, toilet paper, snack chips and salsa to a complete customer deli in their larger stores. Their private label organic produce covers 60% of their produce department. Their Simple Truth Organic brand is now the largest natural food brand in the USA.

While Kroger has been outperforming the other grocery and fresh food stores their shares took a hit in early January when a division president, Lynn Gust, president of the Fred Meyer division retired after 45 years. He started out as a package clerk in 1970 and rose up through the ranks to be named president and then led the division to more than $10 billion in annual sales.

At the same time Credit Suisse lowered their rating on Kroger because of deflation risks. The deflation risk means prices for products are going to continue lower. However, I view that as a positive. Kroger's costs are going down but the price of their products do not have to go down in lock step. This is a profit opportunity for Kroger. The analyst also said fuel prices will eventually rise and that will take money out of consumer's pockets. Since that will happen across the board to all grocery stores it makes sense to own the one that is making money on gasoline with their 786 convenience stores regardless of the prices.

Shares declined from $43 in early January to $36 on the Wednesday crash. This is long term support and shares are very oversold. Earnings are March 3rd and I expect the stock to rebound, assuming the market cooperates. With support at $36.50 and the stock at $37.81 I view this position as very limited risk unless the overall market crashes.

Shares have consolidates over the last year after a monster rally from $17.50 in early 2014.

Earnings March 3rd. We will exit before earnings.

Position 1/29/16:

Long April $40 call, entry $1.05. No stop loss because of the cheap option.

LULU - LuluLemon

LuluLemon designs, manufactures and sells athletic apparel and accessories for women, men and female youth. They operate through corporate owned stores and sell direct to the consumer online. They are best known for their yoga style clothing. Full Company Description


Minor decline on no news. Probably profit taking after sveral days of gains. I am recommending we target $66.25 for an exit. That is just below resistance at $67.

Original Trade Description: January 22nd

LuluLemon surprised everyone when they raised their guidance for Q4 sales saying they had a great holiday season. The company preannounced strong sales when most other retailers were posting losses or mediocre gains. The company now expects Q4 revenues in the range of $690-$695 million compared to prior guidance for $670-$685 million. This represents nearly 19% year over year growth on a constant currency basis.

Earnings guidance was raised to a range of 78-80 cents, up from 75-78 cents. Analysts were expecting 77 cents. The company said it entered 2016 with a bang thanks to a better than expected holiday season and continued increases in store traffic.

Cowen raised the target price from $52 to $66. Wells Fargo ungraded them from neutral to outperform with a target of $65. Jefferies upgraded it from hold to buy and gave it a $70 price target. Credit Suisse maintained its outperform rating but raised the target to $60. Suntrust Robinson reiterated a buy with a $66 target. Morgan Stanley reiterated an overweight with a target of $68. Morgan called it their favorite "turnaround" stock for 2016. Barclays issued an overweight rating with a target of $85.

It is amazing what a little positive guidance can do for Street ratings.

Earnings are March 9th.

Position 1/26/16:

Long March $60 calls @ $2.90, see portfolio graphic for stop loss.

Update 2/3/16: Target $66.25 for an exit.

STZ - Constellation Brands - Company Description


Big decline on no news. I lowered the stop loss to $143.45 and $1 under the support at the 50-day average. That has worked well for the last six months.

Original Trade Description: January 14, 2016:

STZ was one of last year's best performing stocks with +45% gains in 2015. Consistently raising earnings and revenue guidance can do that for a stock. The company is seeing so much demand for their beer products that STZ just announced they're building a huge new brewery in Mexico. Meanwhile their wine and spirits business is seeing stronger margins due to recent acquisitions. Overall STZ is moving into 2016 with the wind at its back.

STZ is in the consumer goods sector. According to the company, "Constellation Brands is a leading international producer and marketer of beer, wine and spirits with operations in the U.S., Canada, Mexico, New Zealand and Italy. In 2014, Constellation was one of the top performing stocks in the S&P 500 Consumer Staples Index. Constellation is the number three beer company in the U.S. with high-end, iconic imported brands including Corona Extra, Corona Light, Modelo Especial, Negra Modelo and Pacifico. Constellation is also the world's leader in premium wine, selling great brands that people love including Robert Mondavi, Clos du Bois, Kim Crawford, Rex Goliath, Mark West, Franciscan Estate, Ruffino and Jackson-Triggs. The company's premium spirits brands include SVEDKA Vodka and Black Velvet Canadian Whisky... Based in Victor, N.Y., the company believes that industry leadership involves a commitment to brand-building, our trade partners, the environment, our investors and to consumers around the world who choose our products when celebrating big moments or enjoying quiet ones. Founded in 1945, Constellation has grown to become a significant player in the beverage alcohol industry with more than 100 brands in its portfolio, sales in approximately 100 countries, about 40 facilities and approximately 7,700 talented employees."

STZ has been killing it on the earnings front. They have beaten earnings the last three quarters in a row. Management has raised their guidance the last three quarters in a row. Their most recent earnings report was last week on January 7th. Analysts were expecting a profit of $1.30 a share on revenues of $1.62 billion. STZ beat estimates with a profit of $1.42 a shares. Revenues were up +6.4% to $1.64 billion. Strong beer sales has helped fuel double-digit shipment increases. The company announced they were building another brewery and raised their guidance again.

This bullish outlook sparked a couple of new price target upgrades ($172, $174 and $185). The stock soared to new highs and broke through key resistance near the $145.00 level on its earnings news and guidance. Shares have seen some profit taking since its spike to new highs. Now STZ is near support at one of its long-term trend lines of higher lows. The simple 50-dma should offer technical support at $140.40. Meanwhile the $140.00 level could offer some round-number, psychological support. Both of these are converging near its trend line of higher highs.

STZ underperformed the market today, which may mean more profit taking ahead. We want to buy calls on STZ as it nears support in the $140.00-140.50 area. Tonight we are listing a buy-the-dip trigger at $140.50 with a stop loss $138.25, just under its early January low.

Position 1/19/16:
Long April $150 Call @ $4.70, see portfolio graphic for stop loss.

THO - Thor Industries - Company Description


Thor dipped to support at $50 again but this time it rebounded to close positive. No news. No change in position.

Original Trade Description: January 29th, 2016:

Thor designs and manufacturers recreational vehicles for the U.S. and Canada. Some of its brands include Airstream International, Flying Cloud, Land Yacht, Eddie Bauer, Interstate and AutoBahn class B motorhomes. They have dozens of other brands in the conventional travel trailers and fifth wheels.

You would think that motorhomes would be a tough sell in the current economy. We know that Harley Davidson (HOG), Polaris (PII) and Arctic Cat (ACAT) have been having some challenges. That is not the case for Thor. Towable RV sales in the U.S. hit a record high in 2015.

In the last quarter, Thor reported earnings of 97 cents, up from 73 cents. Revenue rose +11.7% to $1.03 billion. Profit margins rose from 12.8% to 14.8%. They have $180 million in cash and no debt. They pay nearly a 3% dividend.

At the end of October Thor's backlog in orders for towable RV units was $710 million. The order backlog for motorized RVs was $341 million. With total backlogs of more than $1 billion and headed into the RV selling season, Thor is positioned to capitalize on price increases, margin expansion and even more sales.

Earnings are March 3rd.

Shares collapsed with the market in early January and bottomed the prior week at $48. Despite market volatility last week, they have been moving steadily higher. I am recommending the March options and we will exit before earnings.

Position 2/1/16 after a THO trade at $52.75

Long March $55 call @ $1.15, no stop loss because of the cheap option.

Original Put Recommendations (Alpha by Symbol)

AMBA - Ambarella - Company Description


The Ambarella put was stopped out with a spike at the open to $41.27. This was a two-week high anc caused by short covering after Dougherty & Company upgraded it to a buy. I am recommending we reload this put at the open on Thursday. This spike was out of character and GoPro posted terrible earnings and guidance last night.

Reopen March $32.50 put at the open on Friday.

Original Trade Description: January 27th

Ambarella develops full motion HD video chips for video capture, sharing and display worldwide. The system on a chip handles HD video, audio, image processing and system functions on one chip. Their largest customer is GoPro.

GoPro (GPRO) reported two weeks ago that holiday sales have been dismal and would report Q4 revenue of $435 million, down -31% from the year ago quarter. Analysts were expecting $512 million and that number had already been lowered by analysts fearing sales were declining.

GoPro said it was cutting 7% of its workers and would incur up to $10 million of restructuring expenses in 2016.

Ambarella shares tanked along with GoPro despite having numerous other customers that also buy their chips. Unfortunately, GoPro is their biggest customer by far. In the prior quarter, Ambarella missed estimates for "near-term headwinds" which translates to "GoPro cameras are not selling." This means the current quarter that they will report on March 3rd is not likely to be any better. There is probably an earnings warning lurking in the near future.

GoPro is being hampered by a flurry of new competitors at cheaper prices. This means competition is only going to get worse and GoPro has already cut its prices twice in the last 3 months. All of this means GoPro is losing market share and that means fewer Ambarella chips will be needed.

With Apple shares crashing and estimates for Q1 iPhone sales declining by about 20%, this is going to put a cloud over the entire personal electronics market.

Ambarella is not overpriced with a PE of 13. They are just too reliant on GoPro for the majority of their revenue. If Ambarella could accelerate some purchases by their other customers, the stock would recover quickly. Apparently that is not yet happening and shares are about to decline to an 18-month low under $35.

Earnings March 3rd.

Position 2/3/16, closed 2/4/16:

Closed: Long March $32.50 put, entry $2.17, exit $1.30, -.87 loss.

Reopen March $32.50 put, currently $1.30, stop loss $41.55

BABA - Alibaba - Company Description


Minor rebound after several days of declines. The trend is still lower. Target $58.25 for an exit.

Original Trade Description: January 29th.

This Chinese retailer reported earnings of 73 cents that beat estimates for 70 cents. Revenue of $5.33 billion also beat estimates for $5.08 billion. However, gross merchandise volume rose only 23% to $149 billion and the slowest growth in more than three years. Alibaba has 80% market share in China and they are starting to see the impact of the economic slowdown.

Shares declined after the earnings on Thursday and then declined again on Friday. If it were not for a burst of short covering at the close, they would have ended in the red in a very strong market. They gained only 11 cents on the short covering.

Shares have been declining since mid December when the Chinese economics and equity markets began to weaken further. Investor sentiment is fading as continued questions over accounting issues cloud their results.

It is not that investors are terribly disappointed in Alibaba. They are worried more about China's economic direction with multiple CEOs including Howard Schultz at Starbucks saying China sales are slowing. Add in the constant accounting rumors and investors are leaving the stock.

Shares bumped up against a solid top in Nov/Dec and then faded in January. The stock is about to experience a death cross of the 50-day below the 200-day average. I am looking for a retest of support at $57 from September.

The low last week was $65.34. I am recommending a put position with a trade at $64.85.

Position 2/2/16 with a BABA trade at $64.85:

Long March $65 put @ $3.90, see portfolio graphic for stop loss.

HPQ - Hewlett Packard - Company Description


HP is stuck in a tight trading range but it will eventually break. This is a long-term play to hold over the Feb 24th earnings. Earnings news by other companies will be the driver over the next several weeks.

Original Trade Description: January 25th

Back in October Hewlett Packard spun off its enterprise server business into Hewlett Packard Enterprise (HPE) and the old Hewlett Packard that sells PCs and printers remained (HPQ). The problem with this spinoff is that the enterprise company is where the profits are. The PC business has been declining for years and that is why HP split the two entities.

Since the spinoff at $14.75 in October the HPQ shares have been in decline. They closed at a new low on Monday. I see no reason where HPQ should rally in the near future. PC sales are still expected to decline in 2016 only at a slower pace. There is nothing to produce excitement in the PC company.

In theory we could probably just buy a cheap put and sit on it but HPQ has earnings on February 24th. I expect those earnings to be disappointing. However, you never know if they will pull a rabbit out of the hat and announce something that powers the stock higher. This is why I am recommending a strangle rather than just a straight put play.

HPQ shares closed at $9.49 on Monday and halfway between the $9 put and $10 call. I am recommending the April strangle so we can benefit from the long-term trend if HPQ continues to decline. If earnings disappoint we could see HPQ at $5 by then.

Earnings are February 24th.

Position 1/26/16:

Long April $9 put @ 41 cents, no stop loss.
Long April $10 call @ 50 cents, no stop loss.

JUNO - Juno Therapeutics

Juno is a biopharmaceutical company that develops cell based cancer immunotherapies. Full Company Description


Big spike at the open but note the long wick on the candle. It closed well off its highs.

Original Trade Description: January 22nd

Juno has been very active in buying up its competitors. On January 11th the company announced the acquisition of AbVitro for $125 million. That is their third acquisition in 12 months. However, Illumina (ILMN), ten times larger than Juno, is also on the same track and announced a similar acquisition on the same day.

Juno claims there is more than enough room in the space for both Juno, Illumina and Celgene (CELG) another competitor in the space. Apparently investors are not convinced. Shares of Juno have been in decline since early December and they hit a post IPO low last week. The rebound was lackluster and in a good market on Friday, they only gained 8 cents.

Update 1/26/16: The National Institute of Health (NIH) researchers published a study showing off-the-shelf T-cell therapy could induce remissions in patients with advanced blood cancers. This new "allogenic" T-cell therapy study represents a competitive threat to therapies from Juno, Kite and Novartis.

Earnings are March 17th.

Position 1/26/16:

Long March $27.50 put @ $1.75, see portfolio graphic for stop loss.

VXX - iPath S&P 500 VIX Futures ETN - ETF Description


The VXX closed well off its highs and back down at $25 support. Eventually the volatility will ease. It is only a matter of time.

Original Trade Description: January 16th

At the risk of stating the obvious, the last two weeks in stocks have been brutal. Investors have taken a risk-off attitude and sold just about everything. The small cap Russell 2000 index is already down -11% in the first ten trading days of 2016. The NASDAQ composite is off -10%. The S&P 500 has declined -8%.

The New Year has suffered a parade of negative headlines from disappointing economic data both in the U.S. and China. China devaluating its currency. N. Korea claiming to have hydrogen bombs (several times worse than normal nukes). Crude oil crashing into multi-year lows. Plus falling sentiment for corporate earnings, which are expected to be negative two quarters in a row.

No one wanted to be long over the three-day weekend, which helped drive stocks even lower on Friday. The S&P 500 dipped to 15-month lows before paring its losses on Friday. The fact that Friday was also options expiration just added to the volatility.

Stocks normally don't move that fast in a straight line for very long. Markets a very oversold and way overdue for a bounce. The rebound could show up this week. One way to play it is the volatility indices. The VXX follows the iPath S&P 500 VIX Short-Term Futures Index. When investors panic volatility spikes but these are almost always short-term events. You can see on the long-term weekly chart below these spikes always fade.

Tonight we are suggesting put options on the VXX to capture the decline as volatility fades again and it will sooner or later. We are betting on sooner. We want to buy the March $23 puts at the opening bell on Tuesday.

Position 1/19/16:
Long March $23 Put @ $2.41, no stop loss

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