Option Investor

Daily Newsletter, Tuesday, 12/15/2015

Table of Contents

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

Market Wrap

Announcement Drift

by Jim Brown

Click here to email Jim Brown

The "Pre-FOMC Announcement Drift" was in full swing today with the major indexes up strongly. Rising energy stocks helped to lift the market as oil rose $1 intraday.

Market Statistics

The Dow gained +156 for the day but it still finished -101 points off its highs and the Nasdaq closed -26 points off its high but with a respectable +43 point gain. The markets gapped open after a strong day in the overseas markets. With all the markets seriously oversold, it was a global short squeeze.

It was surprising for the Dow to be up so strongly at the open after a warning from 3M (MMM) sent that stock down -$9.50. That equates to about -65 Dow points. The company said the revisions reflect "the realities of a continued slow-growth global economy." Even worse, the company said global demand for smartphones and other electronics had weakened.

3M cut guidance in October from $7.73-$7.93 to $7.73-$7.78. Today they cut the outlook to $7.55 with full year revenue growth of 1% compared to 1.5% to 2.0% in October. The analyst consensus was $7.77. For 2016, the company guided to $8.10-$8.45 and analysts were expecting $8.40.

Apple shares lost -$2 on the 3M comments about slower smartphone sales. Market tracker IDC said iPhone sales growth would slip into single digits for the first time in Q4 and will decline in 2016.

Chipmaker Dialog Semiconductor (DLGNF), an Apple supplier, warned after the close that revenue would be in the range of $390-400 million compared to prior guidance for $430-$460 million. They blamed the drop in revenue on "weaker than expected demand." Analysts believe the impact from Apple will be in Q1 rather than Q4 since those chips were sold a long time ago. This would suggest iPhone sales could be down 9% in Q1. Some analysts have speculated in recent days that we could see a -15% iPhone decline in Q1.

Susquehanna Financial cut iPhone sales estimates for Q4 from 75 million to 70 million and Q1 sales from 58 to 55 million. Consensus estimates are for 77 million and 60 million.

On the economic front the Consumer Price Index (CPI) for November was flat with no gain after a +0.2% gain in October. Food declined -0.1% and energy -1.3%. Core CPI, ex food and energy, rose +0.2%. Goods declined-0.2% and services rose +0.3%.

Year over year the headline rate is up only +0.4% while the core rate is up +2.0%.

The NY Empire State Manufacturing Survey for December rose from -10.7 to -4.6 but remains in contraction for the fifth consecutive month. Conditions seem to be improving. New orders rose from -11.8 to -5.1 and back orders rose from -18.2 to -16.2. However, employment fell from -7.3 to -16.2.

While the headline number posted the biggest gain since February, it remains in contraction territory and suggests manufacturing in New York is recovering very slowly. There is light at the end of the tunnel but it is too soon to know if it is daylight or a train. The report was ignored.

The NAHB Housing Market Index for December declined from 62 to 61 and the second monthly decline since the ten-year high at 65 in October. Analysts had expected a +2 point gain. Buyer traffic fell from 48 to 46 but that is typical for the fall months. All regions declined except for the South, which was flat at 62. The report was ignored.

All of the economic reports were ignored because everyone is focused on the FOMC announcement on Wednesday afternoon. In the latest survey, 95% of those surveyed expect the Fed to hike rates. I cannot remember a time when the market would rally this strongly ahead of an almost certain rate hike.

The two reports on Wednesday morning will also be ignored unless there are some really ugly numbers. All we have to worry about now is whether there will be a sell the news event or a buy the news event at 2:PM on Wednesday. Quite a few analysts believe the rate hike is priced in and we could see a sell the news event. Regardless of the eventual direction, we know there will be some significant volatility on the announcement and press conference that follows.

In stock news, Sirius XM Holdings (SIRI) shares surged at the open on news Howard Stern had signed another five-year contract. No numbers were given but it is estimated he will get a bump from his current $80 million a year to $90 million. This was a self-defense move by Sirius. Howard is their number one draw and should he decide to retire it would be very painful for Sirius.

Intercept Pharmaceuticals (ICPT) spiked 17% on short covering after a rumor surfaced saying Shire Plc (SHPG) might be interested in acquiring Intercept. There was no real news, only the rumor in trading circles. Intercept has a promising pipeline of drugs that could make it a takeover candidate. However, shares have been plunging since $497 high in 2014. Shares hit $315 in May of this year and closed at $139 yesterday.

Expedia (EXPE) shares rallied almost $9 intraday after the company said it had completed the HomeAway acquisition. That company is a competitor to AirBnB and with Expedia's advertising and market reach it should be a huge boost to their business. Expedia said 63,068,486 shares of HomeAway stock or 64.8% were tendered in the share exchange offer.

Baker Hughes and Halliburton (BHI/HAL) were halted intraday on news the Dept of Justice may not approve the $35 billion Baker Hughes acquisition. The deadline for approval was today. The companies said they met with the DOJ and jointly extended the deadline until April 30th. The DOJ informed the companies that the antitrust remedies they have proposed to date are insufficient to address the competitive concerns of the DOJ. The companies said they would reassess and present some additional options in January.

Australia has delayed its decision until Dec 17th after asking for more information. Brazilian regulators challenged the transaction on Dec 7th and a final decision could take as long as another 240 days. The transaction has been approved in Canada, Columbia, Kazakhstan, South Africa and Turkey. Halliburton has agreed to divest $7.5 billion in assets. The value of the deal, announced in November 2014, has declined from $34.6 billion to $26 billion because of the delay and the drop in oil prices. Halliburton will have to pay $3.5 billion as a breakup fee if they cannot get regulatory approval. Shareholders of both companies have approved the transaction.

Stamps.com (STMP) rallied +6.50 to a new high on no news. The fourth quarter is normally a good quarter for STMP because of all the package shipping done through their postage application. Apparently, investors were looking for some winners to stuff into their stockings and a short squeeze was born.

Lumber Liquidators (LL) spiked +25% to $17.50 after short seller Whitney Tilson changed his view. The hedge fund manager had been leading the charge against LL after he found out there were excess levels of formaldehyde in the LL flooring it bought from China. Tilson said the stock was going to zero and shares plunged from $70 to $13. In a blog post Tilson said he had covered his short after he "received information" that the company's management was not aware that the product they were selling contained those high levels. Originally, he thought the product was bought with full knowledge because it was cheap.

Tilson said the company was "sloppy and naive, but not evil" as he had previously claimed. While it would appear the problem is over for LL that is far from the case. More than 10,000 customers have demanded replacement floors and there will be consumer litigation. California regulators are still testing the various wood samples and floors that were sold and there will probably be some fines there as well.

The high yield implosion claimed a third fund on Monday but the major ETFs were up today. How quickly investors forget bad news when it does not concern them. Some analysts were calling the drop in HYG and JNK a buying opportunity.

The original fund that started the crisis was the Third Avenue Focused Credit Investment Fund (TFCVX). That fund is closed to redemptions and shares closed at $6.48 on Friday. The high for the fund share was $12.30 in June 2014.

Boeing (BA) rallied more than 2% today after they raised their dividend after the close on Monday by 20% to $1.09 and increased their stock buyback plan from $12 billion to $14 billion. The dividend will be paid March 4th to holders on February 12th. Friday morning China Postal agreed to buy 10 next generation 737 freighters. No financial details were released.

Valeant Pharmaceuticals (VRX) rallied +16% after it struck a deal directly with Walgreens to distribute its drugs. This eliminates the middlemen in the drug distribution network. Valeant will cut prices 10% to Walgreens for branded drugs. Generic drug prices will be reduced from 5% to 95%. The deal is structured for 20 years and covers more than 8,000 Walgreen's locations.

Oil producer Magnum Hunter Resources (MHR/MHRC) filed for Chapter 11 bankruptcy in a plan to slash debt after the company ran out of cash. The company entered into a prepackaged deal to convert $1 billion in debt into equity. Other companies that have filed bankruptcy this year include Samson Resources, Sabine Oil & Gas, Quicksilver Resources and Energy & Exploration Partners. MHR changed symbols in October to MHRC.

Qualcomm (QCOM) said it has decided not to split up its business. The company was planning to separate into a chipmaking company and a technology licensing business. After a six month review forced by Jana Partners they elected to pass on the split. The company also raised its earnings guidance to "at or modestly above" the high end of prior forecasts. Those forecasts were for a profit of 80-90 cents.

Yelp (YELP) shares fell -9% after Facebook debuted a competing service that does essentially the same thing. The new service will help users find local businesses based on customer reviews. Facebook has not yet announced the service but it is up and running at this LINK

Late in the afternoon Advance Auto Parts (AAP) rose +6% or $8 to $157 on speculation it had been approached by a buyer. StreetInsider reported the company had been approached and was exploring a sale. The prospective price mentioned was $200 a share. However, shares crashed back to $146 right at the close of the afterhours session on no news. I would speculate that the company told someone there was no truth to the rumor but that would be speculation. AAP shares traded over $200 in November.

Tesla's CEO Elon Musk is out there on the leading edge once again. He warned that World War III could block the colonization of Mars. He warned that the colonization of Mars could be delayed, possibly indefinitely, if not done soon. He said "there is a window that could be opened for a long time or a short time where we have an opportunity to establish a self-sustaining base on Mars..before something happens to drive the technology level on Earth below where it is possible."

Musk believes a major cataclysm on Earth, natural like a solar storm or man-made like a world war could happen in the near future. Having a human colony in space would ensure the long-term survival of mankind. "You back up your hard drive, maybe we should back up life, too."

You have to give Musk credit he is always thinking out of the box. Paypal, Tesla, SolarCity, SpaceX, Hyperloop, Gigafactory, etc, and that is just a few things he has created.

Crude oil rebounded from Monday's seven-year lows at $34.53 to an intraday high of $37.88 in a flurry of short covering. However, prices declined at the close to $37.32 and then another -50 cents in afterhours to $36.86. There is no reason for crude oil to rise. The inventory decline reported last week of -3.6 million barrels was a bad number. The refinery inputs declined -150,000 bpd rather than increased and the imports rose +270,000 bpd. There is no way inventories could have declined that much. These things happen sometimes where an inventory report from a refiner or pipeline company gets overlooked and the numbers come out wrong.

After the bell today, the API Inventory showed a build in inventories of +2.3 million barrels for the week ended on Friday. This caused oil prices to decline in afterhours ahead of the more important EIA report on Wednesday morning.

As I have reported before, crude futures tend to rise on Tuesdays ahead of the inventory reports as traders cover their shorts.

There are a growing number of analysts that are now expecting oil to dip under $30. Not by much and not for long but they are expecting the dip. The recession low was $32 and that is pretty much a sure thing. The under $30 forecast is possible and I think it would mark a bottom at $30.


I explained the "Pre-FOMC Announcement Drift" in the weekend commentary. Given how oversold the market was on Friday I am not surprised to see a decent rebound ahead of the announcement. However, as I mentioned above there is always the chance for a sell the news event. I believe that would happen if the Fed did not hike. I am leaning towards a post announcement rally this time "depending" on the commentary that surrounds any rate hike.

The general consensus is a 25 point hike and then three more in 2016, probably on a quarterly basis. If Yellen lays out a slow path to normalization, I think the market will breathe a sigh of relief and probably continue higher. If the Fed tries to be cute and tease with the timing of the next hike, I think the market will react negatively.

The S&P came very close to support at 1,990 on Monday and then rebounded back over prior support at 2,020. Tuesday's +21 point gain put the index back over higher support at 2,040. I would be very pleased to see this trend continue at 2,060 and 2,080 but the Fed is a huge hurdle to that scenario.

Those levels now represent resistance with 2,080 the strongest.

The Dow performed amazingly well given the 3M anchor knocking off about 65 points. The index rebounded to resistance at 17,600 and came to a dead stop. That was about a +250 point intraday gain and somewhat over extended. The Dow has decent resistance at 17,700 area give or take a few points. The Monday dip to 17,130 was strong support and the rebound was instant.

I would like to tell you the Dow was going to break over that level and retest downtrend resistance at 17,850 but it all depends on how the market reacts to the Fed decision.

The Nasdaq Composite spent most of the day over 5,000 but could not hold it at the close. The high was 5,026 and that will be our first resistance point on any continued rally on Wednesday. Real resistance is 5,100 and that is not likely to be broken easily.

The majority of our gain today was short covering. The Nasdaq gapped open from 4,950 to almost 5,000. That is not because investors suddenly wanted to buy tech stocks. The big market gains overseas had the S&P futures up +12 points in the early morning hours and it grew from there. Anyone short at the open lost money.

On Sunday, I said I would be a dip buyer of QQQ calls at 4,500 on the Nasdaq 100. On Monday, the index dropped sharply at the open to 4,478 giving everyone a perfect opportunity to take advantage of that recommendation.

The NDX gapped open to 4,607 today and spent all day above 4,600 until a sell program at the close knocked it back to 4,597. That makes our intraday high at 4,636 resistance on the next move higher with 4,700 the really tough resistance to break.

The best news of the day was the +16 point rebound in the Russell 2000. It was looking very grim at the close on Monday and the late December Russell rally was still a no show. The +1.4% rebound was the most of the major indexes. However, it has a long way to go before we can claim a recovery. One day does not make a trend. One day is just short covering.

The biggest market mover for the day was the Biotech sector. The $BTK rallied +3.3% after two weeks of constant decline. I looked at dozens of biotech stocks and quite a few had multiple dollar moves and most were gaps at the open. The BTK gapped up +100 points at the open so it was definitely short covering. I hope it continues since it provided a lot of motive power to the Russell and the Nasdaq.

There is no way to speculate on the market for Wednesday. The futures have been positive and negative since the close but none of that counts. The only factor for market movement on Wednesday is what happens at 2:PM when the Fed decision is released. Despite today's short squeeze, we are still somewhat oversold. That could give us a slight upward bias when the volatility kicks in. Normally there is a spike in both directions immediately after the announcement regardless of what that announcement says. That could trigger some additional short covering but any spike will also be bear bait.

I know it is tempting to bet on the market direction after the announcement. I would recommend against it. This is effectively a coin toss and you are probably betting money you could use for your retirement. I have found that it is easier to overcome the urge to bet the outcome if you just make it a game and buy one contract of something and realize that if you are wrong you will lose and it is not a big loss. If you bet right, then take your wife to dinner and tell her how smart you were. (grin)

I want to thank everyone once again for supporting the Option Investor family of newsletters. Reward yourself now for 2016 and that will be one less item on your list of New Year's resolutions. Receipts are available for deducting on your taxes.

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Enter passively, exit aggressively!

Jim Brown

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New Plays

Too Far, Too Fast

by James Brown

Click here to email James Brown


Ctrip.com International - CTRP - close: 48.34 change: -0.20

Stop Loss: 50.55
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on December -- at $---.--
Listed on December 15, 2015
Time Frame: 6 to 8 weeks
Average Daily Volume = 3.7 million
New Positions: Yes, see below

Company Description

Trade Description:
Occasionally stocks can get ahead of themselves. Investor enthusiasm can become too frothy that drives a stock too high and shares eventually fall back to earth. That could be the case with CTRP.

CTRP is part of the services sector. According to the company, "Ctrip.com International, Ltd. is a leading travel service provider of accommodation reservation, transportation ticketing, packaged tours, and corporate travel management in China. It is the largest online consolidator of accommodations and transportation tickets in China in terms of transaction volume. Ctrip enables business and leisure travelers to make informed and cost-effective bookings by aggregating comprehensive travel related information and offering its services through an advanced transaction and service platform consisting of its mobile apps, Internet websites and centralized, toll-free, 24-hour customer service center. Ctrip also helps customers book vacation packages and guided tours. In addition, through its corporate travel management services, Ctrip helps corporate clients effectively manage their travel requirements."

First the good news, CTRP is in a growing business. According to a Goldman Sachs analyst, the online travel market in China could triple to $200 billion by 2020. In October this year CTRP made a deal with rival online Chinese travel company Qunar, which was owned by Baidu.com (BIDU). The two companies merged and together will control 70% to 80% of the hotel and air ticket market in China. BIDU now owns 25% of CTRP. Larger rival Priceline.com (PCLN) is also investing in CTRP. PCLN recently invested $500 million in a convertible bond deal with CTRP, which could eventually lead to PCLN owning about 15% of CTRP.

CTRP is also seeing strong business results. Their Q3 earnings, which came out on November 18th, were way above expectations. Management then raised their Q4 guidance above Wall Street estimates. The stock also had a 2-for-1 split, which occurred on December 1st. If that wasn't enough good news the stock is also being added to the NASDAQ-100 on Monday, December 21st.

The merger news with Qunar produced the gap higher in October. The strong Q3 earnings and bullish guidance produced the big gap higher in November. With a rally from $30 in late September to $57 in mid November it appears CTRP just ran too far too fast. The stock has started to correct lower.

The stock split has taken place and it is common for stocks to see a post-split depression. They can also see a post-earnings depression after a big rally on the news. One could argue that all the good news has been priced into CTRP. What's the next catalyst to buy it?

Technically shares are breaking down. The bounce today failed at round-number resistance at $50.00. Shares did not participate in the market's rally yesterday or today. It looks like the pullback in CTRP is not over yet. The point & figure chart is bearish and forecasting at $41.00 target.

Now eventually CTRP will find support and shares will rebound again but support could be all the way down in the $37-40 zone. Yesterday's intraday low was $47.74. We are suggesting a trigger to launch bearish positions at $47.65. Please note this is an aggressive, higher-risk trade. The stock can be very volatile. Use small positions to limit risk.

Trigger @ $47.65 *small positions to limit risk*

- Suggested Positions -

Short CTRP stock @ $47.65

- (or for more adventurous traders, try this option) -

Buy the MAR $45 PUT (CTRP160318P45) current ask $3.80
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

Market Move Higher Ahead Of The Fed

by James Brown

Click here to email James Brown

Editor's Note:
The U.S. stock market extended its bounce to two days in a row ahead of tomorrow's pivotal FOMC decision. An oversold bounce in crude oil didn't hurt today's results.

IWM, SBUX, and SEDG hit our entry triggers today.

Current Portfolio:

BULLISH Play Updates

Activision Blizzard, Inc. - ATVI - close: 38.71 change: +0.75

Stop Loss: 36.40
Target(s): To Be Determined
Current Gain/Loss: +1.5%
Entry on December 04 at $38.15
Listed on December 03, 2015
Time Frame: Exit prior to ATVI earnings in early February
Average Daily Volume = 10.0 million
New Positions: Yes, see below

12/15/15: ATVI definitely participated in the market's widespread rally today. Shares were up about +4% this morning. The rally stalled near its recent highs. ATVI pared its gains to +1.97% on the session.

No new positions at this time.

Trade Description: December 3, 2015
The movie industry gets a lot of press but the video game market is much bigger. One of the biggest companies in this arena is ATVI and they're about to get a lot bigger.

ATVI is part of the technology sector. According to the company, "Activision Blizzard, Inc. is the largest and most profitable western interactive entertainment publishing company. It develops and publishes some of the most successful and beloved entertainment franchises in any medium, including Call of Duty, Call of Duty Online, Destiny, Skylanders, World of Warcraft, StarCraft®, Diablo®, and Hearthstone. Headquartered in Santa Monica, California, it maintains operations throughout the United States, Europe, and Asia. Activision Blizzard develops and publishes games on all leading interactive platforms and its games are available in most countries around the world."

Revenues for a video game company like ATVI tend to be lumpy based on new releases throughout the year. The company has managed to beat Wall Street's estimates on the bottom line the last four quarters in a row.

On November 2nd, 2015, ATVI announced they had signed a $5.9 billion deal to buy King Digital Entertainment (symbol: KING). This deal should give ATVI a huge boost in its mobile gaming footprint and could add a significant chunk to earnings in 2016. A Wedbush analyst believes the mobile gaming market is about $24 billion and growing at up to 20% a year for the next five years. They see the KING acquisition as a great fit for ATVI.

Several days later, on November 11th, ATVI announced that their new Call of Duty: Black Ops III game was the biggest entertainment launch of the year with a three-day opening weekend sales above $550 million. That surpassed any other entertainment launch of the year including books, music, or movies (surpassing the movie Jurassic World's massive opening weekend).

Recently a Cowen analyst said videogames are going to be another hot seller this year and they listed ATVI as their top pick in the industry. Multiple analysts have upgraded their stock price on ATVI following the KING acquisition news. Shares of ATVI have shown significant strength this year. The stock is trading at all-time highs and up +86% year to date. The point & figure chart is bullish and forecasting at $49.50 target.

Today's widespread market decline sparked some profit taking in ATVI. The stock found support at its rising 10-dma. If shares bounce from here we want to jump on board. Tonight we are suggesting a trigger to launch bullish positions at $38.15.

- Suggested Positions -

Long ATVI stock @ $38.15

- (or for more adventurous traders, try this option) -

Long FEB $40 CALL (ATVI160219C40) entry $1.47

12/04/15 triggered @ $38.15
Option Format: symbol-year-month-day-call-strike

iShares Russell 2000 ETF - IWM - close: 112.71 change: +1.60

Stop Loss: 111.45
Target(s): To Be Determined
Current Gain/Loss: +0.1%
Entry on December 15 at $112.65
Listed on December 12, 2015
Time Frame: 4 to 8 weeks
Option traders: exit prior to January option expiration
Average Daily Volume = 36 million
New Positions: see below

12/15/15: Our small cap trade on the IWM is open. Small caps finally bounced and the IWM added +1.4%. Our trigger to launch positions was hit at $112.65.

If you're looking for an entry point tonight I would consider new positions at current levels but you might want to wait for a rally above $113.00 as your next entry point.

Trade Description: December 12, 2015:
Stocks were hammered last week. The small caps really underperformed with the Russell 2000 small cap index plunging 60 points or -5%. The last two weeks have seen an 80-point drop (-6.7%) in the $RUT.

Last week's sell-off looks pretty ugly especially with Friday's breakdown below short-term support near 1,140 on the $RUT index. We think the weakness is overdone.

Normally the middle of December sees some tax-loss selling ahead of yearend. Last week the tax-loss selling was exacerbated by serious weakness in crude oil. Oil's plunge to new seven-year lows crushed the energy sector. There is also some general uneasiness about the Fed's likely decision to raise rates in the week ahead.

Historically the mid-December dip is a buying opportunity. The next two or three weeks is typically bullish and small caps often outperform. We want to be ready if that happens. One way to play the small caps is the Russell 2000 ETF, the IWM.

Friday saw the IWM sink -2.2% to close at $111.91. Tonight we are suggesting a trigger to launch bullish positions at $112.65. If triggered we'll try and limit our risk with a tight stop loss at $111.45, just under Friday's low.

- Suggested Positions -

Long the IWM @ $112.65

- (or for more adventurous traders, try this option) -

Long JAN $115 CALL (IWM160115C115) entry $1.18

12/15/15 triggered @ 112.65
Option Format: symbol-year-month-day-call-strike

Microsoft Inc. - MSFT - close: 55.20 change: +0.06

Stop Loss: 53.20
Target(s): To Be Determined
Current Gain/Loss: +1.1%
Entry on November 04 at $54.60
Listed on November 03, 2015
Time Frame: 6 to 8 weeks.
Average Daily Volume = 35.4 million
New Positions: see below

12/15/15: Yesterday MSFT displayed relative strength. Not so much today with shares only gaining +0.1%. Today's lack of participation in the market rally is a little bit worrisome. I'd hesitate to launch new positions.

Trade Description: November 3, 2015:
MSFT is more than just a software company. MSFT is in the technology sector. It is considered part of the business software industry. According to the company, "Microsoft is the leading platform and productivity company for the mobile-first, cloud-first world, and its mission is to empower every person and every organization on the planet to achieve more."

The company is run under three segments. They have their productivity and business processes segment. This includes commercial office software, personal office software, and more. One of their fastest growing segments is MSFT's Intelligent Cloud business, which includes their server software and enterprise services. Then they have their "More Personal Computing" segment. This includes their Windows operating software, MSN display advertising, Windows phones, smartphones, tablets, PC accessories, Internet search, and their Xbox platform.

The stock has been dead money for almost a year. MSFT peaked near round-number resistance at $50.00 back in November 2014. Shares channeled sideways between support at $40 and resistance at $50 for months. That changed last month.

MSFT reported its 2016 Q1 results on October 22nd. Analysts were expecting a profit of $0.59 a share on revenues of $21.04 billion. MSFT beat both estimates with a profit of $0.67 a share. Revenues came in at $21.66 billion. Their Intelligent Cloud segment saw sales rise +8% but it was actually +14% on a constant currency basis.

Shares of MSFT soared the next day with a surge to 15-year highs. The big rally is based on investors' belief that MSFT and its relatively new management is successfully transitioning away from declining PC sales and moving quickly towards the cloud (and mobile).

Normally I would hesitate to buy a stock like MSFT after a big gap higher. Too often stocks tend to fill the gap. However, shares of MSFT have been able to levitate sideways in the $52.50-54.50 zone as traders keep buying the dips. Odds are growing we could see MSFT rally toward its all-time highs near $60.00 a share from December 1999. The big gain in October produced a buy signal on the point & figure chart, which is now forecasting a long-term target of $82.00. Tonight we are suggesting a trigger to launch bullish positions at $54.60.

- Suggested Positions -

Long MSFT stock @ $54.60

- (or for more adventurous traders, try this option) -

Long 2016 JAN $55 CALL (MSFT160115C55) entry $1.54

12/01/15 new stop @ $53.20
11/04/15 triggered @ $54.60
Option Format: symbol-year-month-day-call-strike

Starbucks Corp. - SBUX - close: 59.98 change: +0.06

Stop Loss: 58.45
Target(s): To Be Determined
Current Gain/Loss: -0.9%
Entry on December 15 at $60.45
Listed on December 08, 2015
Time Frame: Exit prior to earnings in January
Average Daily Volume = 8.8 million
New Positions: see below

12/15/15: The stock market's big rally this morning launched SBUX to an intraday high of $60.68. Our entry point was hit at $60.45. Unfortunately SBUX started to underperform this afternoon and settled virtually unchanged on the session.

The intraday pullback could be a warning signal. If you are looking for an entry point I'd wait for a rally above today's high before initiating positions.

Trade Description: December 8, 2015:
Do you know someone giving or getting a Starbucks gift card for the holidays this year? Odds are you do (see below). The recent action in SBUX looks like another bullish entry point.

We have traded SBUX more than once this year. Here is an updated play description and entry point on the stock:

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. SBUX broke out of that sideways funk after it reported earnings in January 2015.

Five-Year Plan

In late 2014 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.

Sales Growth:

SBUX is a big company and yet they continue to deliver strong earnings and revenue growth. Their Q2 2015 results, released in April, saw revenues up +17.8%. Q3 results, announced in July, saw revenues up +17.5%. Their Q4 results were announced on October 29th. Revenues grew +17.5% again. The company has been killing it with strong same-store sales. Q1's global same-store sales were +7%. Q2's same-store sales were also +7%. Q3's rose to +8%. What's impressive is SBUX is able to deliver this sort of sales growth in spite of the strong dollar and its negative foreign currency impact.

SBUX management provided guidance for Q1 2016 with earnings just below analysts' estimates. They still see double-digit revenue growth next year. The company plans to open about 1,800 new locations in fiscal 2016.

SBUX continues to build out their technology improvements. They see millions of orders a week on their mobile transactions platform. Currently they are testing a delivery service in Seattle.

It's also worth mentioning that the holiday season is normally a strong one for SBUX. Last year one in seven Americans received a Starbucks gift card.

We should also note that there is currently an E. Coli scare going around. Chipotle (CMG) is getting hammered on this story. Other companies like Costco and Starbucks have also had issues with E. Coli in a few products recently but thus far the impact has been very limited for SBUX.

Technically SBUX is in an up trend. It is also one of the best performing stocks in the S&P 500 this year with SBUX up +50% year to date. The point & figure chart is forecasting at $68.00 target. The stock peaked in late October and has spent the last few weeks consolidating sideways. The dips below $60 found support near prior resistance and now SBUX has built a potential bullish double bottom pattern. Tonight we are suggesting a trigger to launch bullish positions at $62.65.

- Suggested Positions -

Long SBUX stock @ $60.45

- (or for more adventurous traders, try this option) -

Long FEB $65 CALL (SBUX160219C65) entry $1.07

12/15/15 triggered @ $60.45
12/14/15 adjust stop loss to $58.45
12/12/15 Entry adjustment - move the trigger from $62.65 to $60.45. Adjust the stop loss down to $58.65.
Option Format: symbol-year-month-day-call-strike

SolarCity Corp. - SCTY - close: 40.05 change: -1.54

Stop Loss: 35.85
Target(s): To Be Determined
Current Gain/Loss: +5.0%
Entry on December 14 at $38.15
Listed on December 12, 2015
Time Frame: 6 to 8 weeks
Option traders: Exit prior to January option expiration
Average Daily Volume = 3.7 million
New Positions: see below

12/15/15: SCTY got a little too extended and hit some profit taking. Yesterday the stock surged +12.2%. This morning SCTY rallied another +7% but the rally ran out of steam at $44.50. Shares retreated back to $39.10 before settling on round-number support near the $40 level (-3.7% on the day).

More conservative investors may want to raise their stop loss again. No new positions at this time.

Trade Description: December 12, 2015:
If you looked at the news this weekend then you probably noticed the headlines regarding the COP 21 UN climate change conference in Paris. Almost 200 countries signed the pledge to help fight global warming. It's a long road from promises to implementation and enforcement but it does signal a big step away from burning fossil fuels in the future. That should bode well for solar power stocks.

SCTY is in the technology sector. Officially it's part of the semiconductor industry. They bill themselves as "America's #1 full-service solar provider." According to the company, "SolarCity® provides clean energy. The company has disrupted the century-old energy industry by providing renewable electricity directly to homeowners, businesses and government organizations for less than they spend on utility bills. SolarCity gives customers control of their energy costs to protect them from rising rates. The company makes solar energy easy by taking care of everything from design and permitting to monitoring and maintenance. SolarCity currently serves 19 states."

The earnings picture is improving. Their most recent earnings report was October 29th. SCTY reported their Q3 results. Wall Street was expecting a loss of ($1.94) a share on revenues of $111.4 million. SCTY blew away the EPS estimate with a loss of just ($0.20) a share. Revenues were up +95% to $113.85 million.

The company provided bullish guidance. They see Q4 installations up +58-69% over a year ago. They introduced 2016 guidance of +40% growth for full-year installations. They have also driven their cost per watt to a new low of $2.84. The company is focused on reducing overall costs even more.

The stock initially sold off on this news but shares bottomed in mid November near $25.00. That looks like a bottom with shares of SCTY up four weeks in a row now. Currently SCTY is hovering near its 50-dma and just below resistance near $38.00. A rally above $38.00 will produce a new buy signal on the point & figure chart. It could also spark some short covering.

The most recent data listed short interest at 54% of the 50 million share float. That's plenty of fuel for a short squeeze. I wouldn't be surprised to see SCTY rally into the $45-50 zone. Tonight we are suggesting a trigger to launch small bullish positions at $38.15. We want to keep positions small to limit risk because SCTY is a volatile stock. This should be considered a higher-risk, more aggressive trade.

*small positions to limit risk* - Suggested Positions -

Long SCTY stock @ $38.15

- (or for more adventurous traders, try this option) -

Long JAN $40 CALL (SCTY160115C40) entry $2.78

12/14/15 new stop @ 35.85
12/14/15 triggered @ $38.15
Option Format: symbol-year-month-day-call-strike

SolarEdge Technologies - SEDG - close: 21.99 change: +1.02

Stop Loss: 19.25
Target(s): To Be Determined
Current Gain/Loss: +2.5%
Entry on December 15 at $21.45
Listed on December 14, 2015
Time Frame: 6 to 8 weeks
Average Daily Volume = 790 thousand
New Positions: see below

12/15/15: SEDG is another solar stock but this one continued yesterday's rally. Shares gapped open higher at $21.45 and then rallied to a +4.8% gain on the session. Our plan was to open bullish positions at $21.20 so the gap higher at $21.45 immediately triggered our play.

Tonight I'm moving our stop loss to $19.25. More conservative traders may want to raise it closer to $20.00 instead.

Trade Description: December 14, 2015:
The world is changing. Over the weekend 195 countries signed a pledge to help cut greenhouse gas emissions and stall global warming. It doesn't matter if you're a climate change skeptic or a diehard supporter, governments are going to implement policies that change how we consume energy. It should be bullish for solar energy companies.

SEDG is in the technology sector. They're considered part of the semiconductor industry. According to the company, "SolarEdge provides an intelligent inverter solution that has changed the way power is harvested and managed in solar photovoltaic systems. The SolarEdge DC optimized inverter system maximizes power generation at the individual PV module-level while lowering the cost of energy produced by the solar PV system. The SolarEdge system consists of power optimizers, inverters and a cloud-based monitoring platform and addresses a broad range of solar market segments, from residential solar installations to commercial and small utility-scale solar installations."

The company is growing fast. Their Q2 results, announced on August 12th, beat estimates on both the top and bottom line. Revenues were up +120% from the prior year and management raised their Q3 guidance.

Q3 results were announced on November 4th. Analysts were expecting a profit of $0.29 a share on revenues of $110 million. SEDG beat both estimates. Earnings were $0.36 a share. Revenues were up +16.9% from the prior quarter and up +71.8% from a year ago to $115.1 million. Gross margins improved from 28.7% in Q2 to 29.1% in Q3.

Guy Sella, the founder, Chairman, and CEO of SolarEdge, commented on their quarter, "We are very satisfied with another strong quarter of record revenues and improved gross margins. In addition to our very positive financial results, this quarter we introduced our new HD Wave inverter topology, demonstrating our technological leadership in the market. We are confident that our global presence and expanded product offering position us well for continued growth." Management then raised their full-year 2015 revenue guidance.

The stock appears to have bottomed with the lows in the $15-16 area. The last few weeks have seen the trend reverse higher with a pattern of higher lows and higher highs. Shares recently broke through significant resistance at $20.00, at its 50-dma, and its trend line of lower highs. The point & figure chart is bullish and forecasting at $27.00 target.

The stock displayed relative strength today. We are suggesting a trigger to launch small bullish positions at $21.20. SEDG has been volatile in the past. I consider this a more aggressive, higher-risk trade.

- Suggested Positions -

Long SEDG stock @ $21.45

- (or for more adventurous traders, try this option) -

Long MAR $25 CALL (SEDG160318C25) entry $2.10

12/15/15 new stop @ 19.25
12/15/15 triggered on gap open at $21.45, trigger was $21.20
Option Format: symbol-year-month-day-call-strike

BEARISH Play Updates

Columbia Sportswear - COLM - close: 44.46 change: +0.45

Stop Loss: 48.05
Target(s): To Be Determined
Current Gain/Loss: +0.6%
Entry on December 08 at $44.75
Listed on December 07, 2015
Time Frame: Exit prior to earnings in February
Option traders exit prior to January expiration
Average Daily Volume = 284 thousand
New Positions: see below

12/15/15: COLM's rally this morning failed just below its 10-dma (again). Shares still managed a +1.0% gain on the session.

At the moment I'd wait for a new drop below $43.80 before initiating new positions.

Trade Description: December 7, 2015:
The pace of consumer spending has been disappointing this year. Overall retail sales have been slow. Plus the warmer weather has been a major set back for outerwear and winter clothing a lot of retailers are dealing with high levels of unsold inventory.

COLM is in the consumer goods sector. According to the company "Columbia Sportswear Company has assembled a portfolio of brands that connect active people with their passions, making it a leader in the global active lifestyle apparel, footwear, accessories and equipment industry. Founded in 1938 in Portland, Oregon, the company's brands are today sold in approximately 100 countries. In addition to the Columbia® brand, Columbia Sportswear Company also owns the Sorel®, Mountain Hardwear®, prAna®, Montrail® and OutDry® brands."

Bullish COLM investors have got to be frustrated. It's true that a lot of retailers have struggled. Yet COLM has had pretty good results this year. Their Q4 report from 2014, announced in February, was above estimates and management raised guidance. The stock soared on the bullish report and guidance.

Their Q1 results, on April 30th, beat estimates and guidance was in-line. Then on July 30th, COLM reported their Q2 results. Again earnings and revenues beat estimates by a wide margin. Management raised their guidance again. Shares of COLM exploded to new all-time highs and almost hit $75.00. That has proven to be the peak.

Since COLM's report in July the market has begun selling COLM's stock. The up trend reversed with COLM sinking under a bearish pattern of lower highs and lower lows. They reported their Q3 results on October 29th. They beat estimates again and raised their full-year guidance. The stock gapped higher nearly $10 the next day only to reverse lower.

Dick's Sporting Goods (DKS) really shook up the retail industry when they reported their earnings on November 17th. DKS missed Wall Street estimates on both the top and bottom line and DKS guided lower. The company blamed warm fall weather on their disappointing results. DKS also warned that Q4 would likely be very promotional, which would hurt margins. A few days later Bank of America Merrill Lynch downgraded COLM from "buy" to "neutral" over similar worries.

Technically COLM is in a bear market. The point & figure chart is forecasting at $36.00 target. COLM bounced off the $45.00 level in November. That bounce has failed. Now shares are about to breakdown under key support at $45.00. We are suggesting a trigger to launch bearish positions at $44.75.

- Suggested Positions -

Short COLM stock @ $44.75

- (or for more adventurous traders, try this option) -

Long JAN $45 PUT (COLM160115P45) entry $2.80

12/08/15 triggered @ $44.75
Option Format: symbol-year-month-day-call-strike

GameStop Corp. - GME - close: 30.54 change: +0.27

Stop Loss: 32.25
Target(s): To Be Determined
Current Gain/Loss: -1.1%
Entry on December 11 at $30.22
Listed on December 10, 2015
Time Frame: 6 to 8 weeks
Option traders exit prior to January expiration
Average Daily Volume = 2.1 million
New Positions: see below

12/15/15: GME is still bouncing and added 27 cents for the second day in a row. Shares hit an intraday high of $31.15 before paring their gains.

Prior support near $32.00 should be new resistance. No new positions at this time.

Trade Description: December 10, 2015:
The future of video game purchases is digital downloads. That is why shares of GME have struggled the last couple of years. Their retail business model is in serious jeopardy.

GME is in the services sector. According to the company, "GameStop Corp., a Fortune 500 and S&P 500 company headquartered in Grapevine, Texas, is a global, multichannel video game, consumer electronics and wireless services retailer. GameStop operates more than 6,800 stores across 14 countries. The company's consumer product network also includes www.gamestop.com; www.Kongregate.com, a leading browser-based game site; Game Informer® magazine, the world's leading print and digital video game publication and the recently acquired Geeknet, Inc., parent company of ThinkGeek, www.thinkgeek.com, the premier retailer for the global geek community featuring exclusive and unique video game and pop culture products. In addition, our Technology Brands segment includes Simply Mac and Spring Mobile stores. Simply Mac, www.simplymac.com, operates 72 stores, selling the full line of Apple products, including laptops, tablets, and smartphones and offering Apple certified warranty and repair services. Spring Mobile, http://springmobile.com, sells post-paid AT&T services and wireless products through its 590 AT&T branded stores and offers pre-paid wireless services, devices and related accessories through its 69 Cricket branded stores in select markets in the U.S."

The company's earnings results have been mixed. Their Q2 report, announced on August 27th, came in better than expected. GME beat analysts' estimates on both the top and bottom line. Management raised their 2016 guidance. Guess what? Traders sold the news anyway.

Fast-forward to November. The stock has already reversed under major resistance near $48 again. Shares plunge on November 13th following an analyst downgrade. Ten days later GME reports their Q3 earnings results. Their profit was $0.54 a share. Not only is that 5% decline from a year ago but it's five cents below estimates. Revenues were down -3.6% to $2.02 billion, another miss. Hardware sales plunged -20% in the third quarter. Software sales were down -9%. GME's comparable store sales fell -1.1%, which was below guidance. If that wasn't enough management lowered their Q4 guidance below Wall Street estimates. Following this Q3 report the stock garnered several analyst downgrades.

One of GME's biggest challenges is digital downloads where customers do not have to leave their home (or dorm room) to purchase new games. They can just purchase it online over the Internet and have it immediately downloaded and start gaming. Not only does this jeopardize GME's new game sales but it also hurts a major portion of their business, which is reselling used games. If fewer people are buying hard copy discs of their video games then that means fewer people selling their used games back to GME, which the company resells at a healthy margin.

The trend of digital downloads started years ago but they are growing in popularity. The bearish story on GME is not a secret. That's probably the biggest risk. There are already a lot of bears in the name. The most recent data listed short interest at 53% of the 103 million share float. That much short interest can make the stock volatile to any potentially positive headlines. I think the bears are right and GME is headed lower as their business continues to struggle.

Another risk is valuation. The stock has fallen -33% in the last few weeks. Most of the analyst action in GME has been bearish with several downgrades. The stock currently trades with a P/E around 8.6. Eventually some analyst firm might decide to upgrade it on a valuation basis and the stock could see a short-term rally on this sort of headline. Fortunately traders usually sell the rallies in GME.

Currently GME is flirting with a breakdown below major support in the $31.50-32.00 area. A breakdown here could see the current downtrend accelerate. The point & figure chart is bearish and forecasting at $19.00 target. Tonight we are suggesting a trigger to open bearish positions at $31.40. Please note that this is an aggressive, higher-risk trade. GME can be a volatile stock. I am removing our normal entry point disclaimer regarding gap downs. Due to potential volatility traders may want to use the options instead of trying to short the stock. I am listing the January puts. You might want to consider the April puts (next available month).

- Suggested Positions -

Short GME stock @ $30.22

- (or for more adventurous traders, try this option) -

Long JAN $30 PUT (GME160115P30) entry $2.44

12/11/15 triggered on gap down at $30.22, suggested entry was $31.40
Option Format: symbol-year-month-day-call-strike

Harley-Davidson, Inc. - HOG - close: 45.95 change: +0.42

Stop Loss: 48.25
Target(s): To Be Determined
Current Gain/Loss: -0.4%
Entry on December 11 at $45.75
Listed on December 09, 2015
Time Frame: Exit prior to earnings in January
Average Daily Volume = 3.15 million
New Positions: see below

12/15/15: The stock market surged at the opening bell today. HOG gapped higher at $45.97 and rallied to $46.58 intraday. The rebound reversed under technical resistance at its simple 10-dma.

I would use a new decline under $45.65 as another entry point to launch bearish positions.

Trade Description: December 9, 2015:
HOG was a big winner during the market's rally off the 2009 bear-market low. Shares surged from about $8 in early 2009 to over $74.00 in 2014. Unfortunately that bullish momentum is long gone.

HOG is in the consumer goods sector. According to the company, "Harley-Davidson, Inc. is the parent company of Harley-Davidson Motor Company and Harley-Davidson Financial Services. Since 1903, Harley-Davidson Motor Company has fulfilled dreams of personal freedom with custom, cruiser and touring motorcycles, riding experiences and events and a complete line of Harley-Davidson motorcycle parts, accessories, general merchandise, riding gear and apparel. Harley-Davidson Financial Services provides wholesale and retail financing, insurance, extended service and other protection plans and credit card programs to Harley-Davidson dealers and riders in the U.S., Canada and other select international markets."

The company has seen sales slow down. Their most recent earnings report was October 20th. Q3 earnings growth was flat (+0%) from a year ago at $0.69 a share. That missed estimates by 8 cents. Revenues only rose +0.9% to $1.14 billion, which also missed estimates. The company said their dealer new motorcycle sales were down -1.4% worldwide from a year ago. Their U.S. sales fell -2.5%. Shipments came in below guidance.

Matt Levatich, President and Chief Executive Officer, said, "We expect a heightened competitive environment to continue for the foreseeable future." The company lowered their shipment guidance for 2015. They also lowered their margin guidance. The stock reacted with a big drop on the earnings miss and lowered guidance. Multiple analyst firms downgraded the stock in response to the news.

Technically HOG is in a bear market. Shares have a bearish trend of lower highs and lower lows. HOG spent most of November struggling with resistance at $50.00. The recent weakness has pushed shares to new two-year lows. The next drop could push HOG toward $40 or lower. Tonight we are suggesting a trigger to launch bearish positions at $45.75.

My biggest concern is some analyst deciding that HOG looks "cheap" on valuation. At this point HOG could be a value trap. Cheap stocks can always get cheaper.

- Suggested Positions -

Short HOG stock @ $45.75

- (or for more adventurous traders, try this option) -

Long FEB $45 PUT (HOG160219P45) entry $2.59

12/11/15 triggered @ $45.75
Option Format: symbol-year-month-day-call-strike

Leucadia National Corp. - LUK - close: 16.96 change: +0.88

Stop Loss: 17.16
Target(s): To Be Determined
Current Gain/Loss: +4.2%
Entry on November 30 at $17.70
Listed on November 28, 2015
Time Frame: 6 to 9 weeks
Average Daily Volume = 2.1 million
New Positions: see below

12/15/15: Hope springs eternal. One of LUK's biggest businesses is its investment banking company Jefferies. This morning Jefferies reported their quarterly results and the numbers were terrible! Sales and trading revenues fell -36% from a year ago. Their fixed income sales plunged -83%. Investment banking revenues crashed -48%. So what does the stock do? Why it rallies +5.4%, naturally.

Jefferies CEO Richard Handler promised to return to profitability. It looks like someone believed him. Bloomberg got some analyst reaction to Jefferies' results. Chris Kotowski, an analyst at Oppenheimer & Co., said, "It was a dreadful year and a dreadful quarter on some levels, but not worse than expected and there's every reason to expect next year will get better. Their balance sheet is better than it was a year ago and they'll live to fight another day."

Today's bounce lifts LUK to short-term resistance at $17.00. If there is any follow through tomorrow we could get stopped out at $17.16.

No new positions at this time.

Trade Description: November 28, 2015:
Investors appear to have soured on shares of LUK. The stock is down -20% year to date but it's off -29% from its July 2015 highs. LUK just ended the week at new five-year lows.

LUK is considered part of the financial sector. One of their biggest businesses is their Jefferies Group investment brokerage. Jefferies is only one in a long list of companies that LUK owns. You could argue LUK is more of a holding company or a conglomerate and a very diverse one at that.

Here's a list of some of LUK's businesses:
Berkadia, a full-service mortgage bank
FXCM, an online foreign exchange trading platform (NYSE:FXCM)
HomeFed, a real estate developer (65% owned by LUK)
Foursight Capital, an Auto loan originator and servicer
Leucadia Asset Management, a diversified alternative asset management platform
Folger Hill, a multi-manager discretionary long/short equity hedge fund platform
Topwater Capital, a highly-scalable multi-manager and multi-strategy liquid securities fund
Jefferies, a leading, client-focused global investment banking firm
Jefferies LoanCore, a joint venture between Jefferies and GIC Private Ltd (f.k.a. Government of Singapore Investment Corporation), is a finance company focused on originating and securitizing commercial mortgage loans
National Beef, a beef processing company that processes ~3 million fed cattle per year representing ~12.5% market share
HRG Group, a diversifed holiday company (NYSE: HRG) that operates in four business segments: consumer products - Spectrum Brands (NYSE: SPB, ~58% ownership); insurance - Fidelity & Guaranty Life (NYSE: FGL, ~81% ownership (1)); FrontStreet Re (100% ownership); Energy - Compass Production (~100% ownership); Asset Management (de minimis net book value).
Garcadia, 26 auto dealerships
Vitesse Energy
Juneau Energy
Linkem, a fixed wireless broadband internet provider in Italy
Conwed, a leading manufacturer of extruded, oriented and knitted plastic netting
Idaho Timber
Golden Queen (gold and silver mine)
(more details about LUK
company .pdf
The earnings picture for LUK has taken a drastic turn for the worse. Their Q1 report, announced March 17th, showed earnings of $11.7 million versus $112 million a year ago. Q1 revenues were down -34%. LUK delivered similar results with their Q2 earnings, announced August 5th. Earnings per share were $0.11 compared to $1.12 a year ago. Revenues were flat at $2.84 billion. Their most recent earnings report was November 5th, 2015. LUK reported their Q3 results, which was a loss of ($0.47) a share versus a profit of $0.14 a year ago. Revenues plunged -21% to $2.36 billion. You can see why investors might be selling the stock.

Management has been trying to take advantage of their low stock price with an aggressive stock buyback program but it's not making much difference. Technically shares of LUK are in a bear market and showing significant relative weakness.

The point & figure chart is very bearish and forecasting an $11.00 target. The last few days LUK has been trying to hold short-term support near $18.00 but that appears to have failed. Tonight we are suggesting a trigger to launch bearish positions at $17.70.

- Suggested Positions -

Short LUK stock @ $17.70

- (or for more adventurous traders, try this option) -

Long MAR $18 PUT (LUK160318P18) entry $1.20

12/14/15 new stop @ 17.16
12/12/15 new stop @ 17.55
11/30/15 triggered @ $17.70
Option Format: symbol-year-month-day-call-strike

iPath S&P500 VIX Futures ETN - VXX - close: 20.76 change: -0.91

Stop Loss: None, no stop at this time.
Target(s): $16.65
Current Gain/Loss: + 4.9%
2nd position Gain/Loss: +28.4%
Entry on August 25 at $21.82
2nd position: September 2nd at $29.01
Listed on August 24, 2015
Time Frame: to be determined
Average Daily Volume = 50 million
New Positions: see below

12/15/15: Volatility retreated on the market's widespread rally. The VXX fell -4.19%.

No new positions at this time.

Trade Description: August 24, 2015
The U.S. stock market's sell-off in the last three days has been extreme. Most of the major indices have collapsed into correction territory (-10% from their highs). The volatile moves in the market have investors panicking for protection. This drives up demand for put options and this fuels a rally in the CBOE volatility index (the VIX).

You can see on this long-term weekly chart that the VIX spiked up to levels not seen since the 2008 bear market during the financial crisis. Moves like this do not happen very often. The VIX rarely stays this high very long.

(see VIX chart from the August 24th play description)

How do we trade the VIX? One way is the VXX, which is an ETN but trades like a stock.

Here is an explanation from the product website:

The iPath® S&P 500 VIX Short-Term Futures® ETNs (the "ETNs") are designed to provide exposure to the S&P 500 VIX Short-Term FuturesTM Index Total Return (the "Index"). The ETNs are riskier than ordinary unsecured debt securities and have no principal protection. The ETNs are unsecured debt obligations of the issuer, Barclays Bank PLC, and are not, either directly or indirectly, an obligation of or guaranteed by any third party. Any payment to be made on the ETNs, including any payment at maturity or upon redemption, depends on the ability of Barclays Bank PLC to satisfy its obligations as they come due. An investment in the ETNs involves significant risks, including possible loss of principal and may not be suitable for all investors.

The Index is designed to provide access to equity market volatility through CBOE Volatility Index® (the "VIX Index") futures. The Index offers exposure to a daily rolling long position in the first and second month VIX futures contracts and reflects market participants' views of the future direction of the VIX index at the time of expiration of the VIX futures contracts comprising the Index. Owning the ETNs is not the same as owning interests in the index components included in the Index or a security directly linked to the performance of the Index.

I encourage readers to check out a long-term chart of the VXX. This thing has been a consistent loser. One market pundit said the VXX is where money goes to die - if you're buying it. We do not want to buy it. We want to short it. Shorting rallies seems to be a winning strategy on the VXX with a constant trend of lower highs.

Today the VXX spiked up to four-month highs near $28.00 before fading. We are suggesting bearish positions at the opening bell tomorrow. The market volatility is probably not done yet so we are not listing a stop loss yet. Our time frame is two or three weeks (or less).

- Suggested Positions -

Short the VXX @ $21.82

Sept. 2nd - 2nd position (Double Down On The September 1st Spike)

Short the VXX @ $29.01

11/07/15 adjust exit target to $16.65
11/02/15 adjust exit target to $16.50
10/19/15 add an exit target at $16.25
10/15/15 planned exit for the October puts
10/14/15 if you own the options, prepare to exit tomorrow at the close
09/02/15 2nd position begins. VXX gapped down at $29.01
09/01/15 Double down on this trade with the VXX's spike to 6-month highs
08/25/15 trade begins. VXX gaps down at $21.82
Option Format: symbol-year-month-day-call-strike