Option Investor

Daily Newsletter, Saturday, 12/26/2015

Table of Contents

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

Market Wrap

Indexes Flirting with Gains for Year

by Jim Brown

Click here to email Jim Brown

The Dow is still in negative territory for the year at -1.5% but the S&P inched fractionally into the green at +0.1% on Thursday. The Nasdaq is not yet guaranteed a yearly gain but is farther ahead at +6.6%.

Market Statistics

Friday Statistics

Thursday was lackluster as expected on volume of only 2.7 billion shares. Stock news was minimal and all thoughts were on the holiday ahead. The Dow suffered some profit taking as Nike, Exxon and Chevron gave up some gains from the prior sessions.

Economics were also minimal. Jobless Claims came in at 267,000 and only 4,000 below the prior week but still near a 40 year low. This is right in line with the average for the last six weeks.

Natural gas storage for the week ended December 18th declined by -32 Bcf to 3,814 Bcf and slightly less than the -34 Bcf from the prior week. The warm weather is preventing normal usage patterns. Typically, we would have seen declines of about -125 Bcf in each of those weeks. We hit a storage record of 4,009 Bcf four weeks ago. Gas prices traded at a 15-year low on the 17th at $1.68 before rebounding with the short squeeze in crude oil to close at $2.04 on Thursday.

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2015 fell to 1.3 percent on December 23rd, down from 1.9 percent on December 16. After Tuesday's third-quarter GDP revision and Wednesday's personal income and outlays release, both from the U.S. Bureau of Economic Analysis, the nowcast for fourth-quarter real consumer spending growth fell from 2.6 percent to 2.1 percent. The nowcast for real residential investment growth fell from 8.0 percent to 0.9 percent after Tuesday's existing-home sales release from the National Association of Realtors.

The GDPNow forecast by the Atlanta Fed is the most accurate forecast of GDP activity. A drop from +1.9% to +1.3% this deep into the quarter is not a good sign. I am sure the Fed heads on the FOMC all recoiled in horror when the number was released. Note that even the blue chip forecasts are accelerating lower.

As you can imagine the economic calendar for next week is very thin. Only two reports are seen as important and those come on Mon/Tue. The rest of the week is in the "ignore zone" where most traders will be absent from the market and those in the market will be counting the minutes until the market closes. Nobody will be concerned about the economic calendar.

On Wednesday Nike (NKE), Ensign Group (ENSG) and Empire Resorts (NYNY) all split their stock. Nike and Ensign split 2:1. Empire did a reverse split for 5:1 to take their stock from $4.34 to more than $22.

For the full split calendar click here.

There was very little stock news and most of it was puff pieces released by the companies as advertisements. Northrop Grumman (NOC) won a $93 million contract to build a full-scale demonstrator of a new unmanned spy plane that can take off and land on destroyers and frigates. The plane will be a large wing with counter rotating propellers that can land vertically like a helicopter but then transition to horizontal flight in stealth mode.

The drone will give smaller surface ships long distance intelligence, surveillance and reconnaissance capabilities. Northrop has been working on the drone project for several years in a joint program led by the Defense Advanced Research Projects Agency commonly referred to as DARPA. They are responsible for dozens of secret projects that turned into major weapons systems. The variety of current projects that are known, sound like science fiction. For instance, nuclear powered insects that work as surveillance drones. Bullet proof underwear, Pharmed blood, a mass-produced synthetic blood. Exacto bullets that can change course in mid flight, robot pack animals, etc. Current Acknowledged DARPA Projects

Back in late October Northrop beat out Boeing and Lockheed Martin for the new long-range strike bomber contract. Northrop has a lot of experience building bombers and most recently built the B2. The Air Force plans to buy 80-100 of the new bombers and the contract could be worth $80 billion with the first plane expected to enter service in 2025.

Apple (AAPL) asked the court to force Samsung to pay an additional $180 million in the long running patent dispute. The company had already paid Apple $548 million on Dec 14th for infringing on patents and designs in the iPhone. Apple said the extra money is due because Samsung continued to sell some of the models that infringed after the 2012 guilty verdict. Originally, Samsung was ordered to pay $930 million but a U.S. appeals court lowered it by -$382 million saying the phones appearance was not protected by a trademark.

A new rumor from the site MacRumors.com confirms the iPhone 6C will more than likely be announced with the new version of the watch on March 2nd. A presentation from China Mobile hinted at the ship date in early April. The 6C will be a 4-inch iPhone with an aluminum casing like the 5C. There will be 2-3 color combinations and the A9 processor with a 8-megapixel rear-facing camera and 1.2 megapixel front-facing camera.

Apple shares have to get past the January 27th earnings event where iPhone sales for Q4 will be disclosed. This is a make or break quarter for Apple. Rarely a day passes that some analyst is not cutting his sales estimates. The official consensus was 77 million but that is slowly sinking and could be under 70 million by the time earnings are released. Apple shares declined -58 cents on Thursday and are struggling to hold over support at $107.50.

Retailers were bombing the airwaves with ads for their clearance sales this weekend. Last Saturday, called Super Saturday, failed to live up to expectations according to Customer Growth Partners. Super Saturday is normally the biggest sales day of the year and larger than Black Friday. Sales in stores and online rose +4% to $55 billion after a 2.5% gain last year. That put final estimates for overall store and online sales since the November start of the holiday shopping season at 3.1% and below the 3.2% in the prior forecast and 4.1% growth in 2014.

Analysts are hoping last minute sales in the final ten days of the season were increased by low gasoline prices and early gift card redemptions. The National Retail Federation has predicted a +3.7% rise in sales for the season and that is not looking likely at this point.

Market Track said product discounts before Christmas were in the range of 20% to 50% and deeper than in prior years. Advertised post Christmas discounts this weekend were 60-75%. The NRF said store traffic was down sharply due to a large rise in online sales. Forrester Research expects consumers to spend $95.5 billion, a rise of +11%.

FedEx was forced to deliver on Christmas Day and on Saturday in order to process tens of thousands of packages that failed to arrive on time. UPS cut off acceptance of packages from retailers in order to avoid similar problems to last year.

Analytics firm Retailnext, which tracks large chain stores like Best Buy, Walmart and Target said sales dropped -6.7% in the pre-Christmas weekend and store traffic declined -10.4%. However, customers that did visit the stores spent more than in 2014.

Everyone said apparel sales were hurt severely by the lack of cold weather. Record highs were set in 23 states and more than 10,000 individual records were broken for highs in cities and states on Eastern portion of the USA.

Retailers typically see their shares fade after the first few days of January. Best Buy, Walmart and Target all saw gains last week and those gains are likely to erode once we are into 2016.

Amazon (AMZN) captured 39.3% of e-commerce spending from Nov-1st to Dec 6th according to Slice Intelligence. That makes it really tough for brick and mortar retailers.

Chipotle Mexican grill (CMG) closed at a new low last week after news of another E.coli outbreak in four new states. However, only 4 of the 5 new cases had eaten at a Chipotle restaurant. Chipotle has been adamant over the last several days that there is no E.coli in their stores. They claim they have checked, double checked and triple checked their sources and vegetables using the latest methods and nothing has ever been found.

The conspiracy theorists are coming out of the woodwork. E.coli has been reported in Chipotle stores in a dozen states and many of those states are unrelated to the other states in terms of supply chain or suppliers. The last outbreak was a different strain of E.coli according to the CDC and both were "rare" strains. The Norvovirus in the Boston breakout was also "rare" strain and not common in the population.

Also, in all the E.coli outbreaks in a dozen states, not one single employee has ever come down with the illness and they eat there every day and sometimes twice. In prior outbreaks at other chains, the employees got sick as well.

Chipotle is very adamant about not using GMO foods. They have made enemies of Monsanto, Dow and Dupont. All would have the capability to sabotage the food chain for Chipotle suppliers. Chipotle has built their brand on locally sourced, non GMO, organic ingredients and this series of events is killing that model.

What are the odds that two different outbreaks of different strains of a rare E.coli would occur at almost exactly the same time and ONLY impact Chipotle and nobody else? The odds are pretty slim because suppliers sell to more than one company. The suppliers are also in different parts of the country.

I love conspiracy theories and this one is gaining some backers because of the odds against the outbreaks occurring naturally. Corporate sabotage exists and this kind of brand assassination would be very easy to accomplish and it would be relatively inexpensive to do. The damage to Chipotle has been extreme with their market cap cut by more than 35% or -$8 billion.

Chipotle is probably going to announce some startlingly bad numbers when they report earnings on Feb 2nd. Same store sales could decline more than 20%, which is similar to the problems YUM Brands had in China over the last two years. JP Morgan downgraded CMG from overweight to neutral with a $555 price target.

I want to buy CMG but I do not think the damage is over. Investors are going to be fleeing this stock until the earnings and should another outbreak appear the next downdraft could be dramatic because it would give more credence to a brand assassination scheme.

Ambarella (AMBA) was initiated with a buy rating at Craig Hallum with an $80 price target. Shares closed Thursday at $59.

Avago Technologies (AVGO) was upgraded by RBC Capital from outperform to top pick. They raised the price target from $155 to $170. AVGO closed at $146.

BlackBerry (BBRY) was upgraded by RBC Capital to outperform with a $12.55 price target. JP Morgan initiated coverage with a neutral rating and price target of $9. Shares closed at $9 on Thursday.

Best Buy (BBY) was reiterated by Citigroup with a buy rating but they cut the price target from $45 to $38. Shares closed at $30.50.

FedEx (FDX) saw Goldman raise their price target to $182 with a buy rating. This was before the company warned they had thousand of packages that did not get delivered on time. Shares closed at $149.65.

Morgan Stanley upgraded SolarCity (SCTY) to overweight with a price target of $104. That was up from $86. Shares closed at $52 suggesting an upside potential of 80%. However, Deutsche Bank reiterated a buy rating but cut their price target from $80 to $64 so not everyone is on board with the recent rally. Elon Musk bought 307,152 shares in the market on Nov 13th for an average price of $25.35. The timing on that transaction was perfect.

Pep Boys (PBY) said they have amended their agreement with Bridgestone to raise the offer price from $15.50 to $17.00 per share or $947 million. The prior day Pep Boys said Carl Icahn was willing to pay up to $1 billion for the company. Apparently, there were some extenuating circumstances because the board recommended to shareholders to accept the Bridgestone offer and said it no longer considered the Icahn offer to be a "superior proposal." That is what the board had called it just one day earlier. Icahn had offered $16.50 per share.

To date only 44,485 PBY shares had been tendered and Bridgestone extended the deadline to midnight on January 12th. The breakup fee was hiked from $35 million to $39.5 million if Pep Boys breaks the agreement to accept an Icahn offer. Carl cannot lose here. If he buys the company, he merges it with his existing auto parts chain that has four times the revenue as PBY. If he does not buy it then he will get the $17 per share for the 12.12% (6.56 million shares) of PBY he owns at a much lower price.

There was another short squeeze in oil last week. Crude prices touched a new low of $33.98 on Monday and then rallied the next three days. Fuel for the rally came from a decline in inventories on Tuesday evening with the API report and then Wednesday morning with the EIA report. The EIA report showed a decline of -5.9 million barrels. Under informed investors thought this was certainly a sign of things to come. They were wrong.

Refiners are taxed on oil in inventory on December 31st. With millions of barrels in inventory, that tax is millions of dollars. Refiners halt deliveries of crude in late December in order to lower their inventories. Last week crude imports declined -986,000 bpd to 7.33 mbpd. They cut imports by -6.9 million barrels and inventories declined only -5.9 million. The same thing should happen this week and next because the inventories are a lagging number by a week. Inventories should decline. Inventories in the first two weeks of January should move significantly higher as those tankers waiting offshore are moved to the coast to unload.

Nothing else changed. Production rose 3,000 bpd to 9.179 mbpd. Refinery utilization declined from 91.9% to 91.3%. That means they used less oil, not more. Refiner inputs declined -143,000 bpd to 16.47 mbpd. They used less so it would be impossible for inventories to actually decline since U.S. production remained the same. It was all due to the drop in imports because of the taxes due next Thursday.

The active rig count declined another -9 rigs to an even 700. Oil rigs declined -3 and gas rigs declined -6. We are now down -1,231 from the peak last year at 1,931. That is an 18-year low on gas rigs and a 16-year low on oil rigs. Oil rigs are declining but oil production has not declined materially in the last 12 weeks. Oil prices will go lower.


Cue the increasingly tense background music as 2015 comes to a close and the markets are within a mere handful of points of finishing in the green or the red for the year. More than once they have been managed to the point where they close right on the dividing line. In 2011 the S&P closed at 1,257.60 and less than a tenth of a point from the 2010 close. I would not be surprised to see that again this year.

The analyst community is mixed on what to expect for 2016. Some believe we will see a significant correction and some believe we will see double digit gains. Opinions are like noses, everybody has one. The critical breakeven point for the S&P is 2,058.90 and the close for last year. We closed on Thursday at 2,060.99 and about +2 points in the green.

The Dow target is 17,823.07 and we closed on Thursday at 17,552.17 or about -271 points below a positive close for the year.

I would expect market makers and fund managers to try and window dress those averages to create a positive close for 2015. Negative markets are bad for advertising. Even a small gain is positive. Since fund managers are seeing their worst returns since 1998, they have incentive to try and manage the year-end close.

The Nasdaq close for 2014 was 4,736.05. Thursday's close was 5,048.49. It would take a major traumatic event to knock the Nasdaq down -312 points to finish in the red. The Nasdaq should remain positive with its 6.6% gain for the year. The Nasdaq 100 is much better off with a +9.1% gain for the year.

I have written many times about the majority of the market gains in 2015 coming from the top ten stocks in the Nasdaq. The gains did not come from the industrial stocks, energy or retail. The market's gains came from the large cap tech stocks. Window dressing should keep those stock positive for the next several days.

The seasonal trend for next week is bullish early in the week and bearish on the last couple days as traders prepare for early January selling. January is the second worst month of the year over the last ten years. Long term it is a winner but in recent years the trend has been mixed. The average loss for January over the last ten years has been -1% but it has only been negative 5 out of those ten years. However, when it is negative it is significantly negative. The last two years have been negative and the prior three were strongly positive.

The rebound last week was short covering, thanks in part to oil prices, and window dressing. The S&P rebounded to that 2,060 resistance level we have discussed many times in recent months and that is where it stalled. The energy stocks declined on Thursday as traders took profits from the three-day bounce.

You cannot look at the S&P chart and construct a bullish scenario. We have a series of lower highs and a lower low from the prior week. There are multiple levels of overhead resistance culminating in the downtrend resistance at 2,105. It would be a window dressing miracle if we moved over that 2,105 level on miniscule volume next week. That does not mean we will not get there in the weeks ahead. Once into January we have a 50:50 chance of a strong month given the recent history. If we do manage to move over 2,100 and then 2,116 it would trigger significant short covering and price chasing into 2016 and it would be a nice start to the year.

The Dow was supported last week by the Dogs of the Dow strategy. Investors were buying the most beaten down stocks of 2015 in hopes they would outperform in 2016. The coming week could follow the same pattern. However, if oil prices roll over it will drag on Chevron and Exxon and offset any gains in the smaller stocks.

Nike (NKE) split 2:1 on Wednesday and at $63 will have limited impact on the Dow in 2016 after being the top performer in 2015. It is now the tenth lowest priced stock in a price-weighted index. I do expect Nike to recover from its post split depression in January and we do want to own it when that happens.

With the economics worsening, I would not expect the bank stocks to rally next week. That leaves the Dow's progress to bottom fishers and window dressers.

The Dow has the same ugly chart as the S&P with solid downtrend resistance.

The Nasdaq chart is much better looking without the downtrend resistance. There is solid overhead resistance at 5,100 and 5,160 but we were there just three weeks ago and the tech stocks should do well over the next couple of days.

The Nasdaq 100 big caps have resistance at the historic high at 4,737 and only +115 points away from Thursday's close. It is entirely possible that window dressing could push the index back close to that level.

The Russell 2000 is the weakest index with barely any rebound off the lows from last week at 1,120. Since the Russell is supposed to be the strongest index in December, it is not following the plan. The index would need several days of major gains just to put it within striking distance of the strong resistance at 1,200.

The lack of a small cap rally in December could dampen sentiment for the Santa Claus rally. That is the last five days of the year and first two days of the next year. Without the leadership of the Russell that rally could be weak.

On the positive side the Biotech Index is about to reach a three month high. If the biotechs continue to surge over 3,850 they could lead the Nasdaq and Russell higher because biotechs are a major component of both those indexes.

The biotechs gained +3.42% for the week and they are up +11.1% for the year. We could see some significant window dressing in this sector because managers want winners in their portfolio at year-end.

Fundstrat Global Advisors co-founder Tom Lee said there was a 5:1 chance of a double-digit gain in 2016. Lee is looking for a 10-12% rise in the market. He said the markets had to fight the headwinds of the strong dollar, falling oil, declining credit quality and a weak high yield market in 2015. He is impressed that the markets are ending the year flat and sees that as a sign that those problems are now priced into the market.

Oil prices will rise in 2016 but probably not until Q2 and then accelerate later in the year. The credit issues will work themselves out with some defaults but increase conviction on those that do not default.

Lee said the median gain after a flat year is 11%. "We are five times more likely to have a double digit year than another year flat."

Citigroup's U.S. Equity Strategist Tobias Levkovich said the bank's measurements were predicting a 96% probability of an up market in 2016. "We did not start 2015 with the same signals we are seeing for 2016 and that is giving us a lot of comfort."

Bavid Bianco, chief equity strategist at Deutsche Bank said "it is rare for the market to be flat or down two years in a row outside a recession."

Despite the volatility, the analyst community is not backing off their estimates for yearend 2016. Cannacord is the highest at 2,350 followed by RBC Capital at 2,300, Bank America at 2,250, Wells Fargo at 2,245 and Morgan Stanley at 2,175. Just because they put out an estimate does not mean that is where the market is going. I will publish On January 1st the results from the 2015 estimate contest. A survey of multiple strategists by Barron's suggests the equity markets will rise about 10% in 2016. The strategists gave their reasons in an article last week. Full Article

The worst is over for energy earnings. Their horribly bad comps are behind them and now it is simply a matter of waiting for demand to improve and the low prices to take their toll on the high cost producers. There is a 100% chance prices will rise in the years ahead and when that happens equity prices will follow. That sector was about 12% of the S&P-500.

While nobody can accurately predict market direction, the long-term trend is always up with an 8% annual average. Now that the Fed has started hiking rates the uncertainty is gone. Europe and Japan are increasing stimulus in an effort to accelerate their recoveries. After a year of dormancy, it would make sense for investors to bet on equities. With the Fed hiking rates, the bond market should be seeing continuous outflows back into equities. We know treasuries are going to be losers in a rate hike cycle so there is no alternative other than investing in equities or holding cash.

The S&P has not been down two years in a row since 1980-1981. That means it has been 34 years since we had a back-to-back loss and the odds are good 2016 will finish higher. Every dip has been bought. While we may not be back at the highs, we are not that far away. Eventually equities are going to rally and we want to be ready when they do.



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Random Thoughts

If Elon Musk can launch a rocket to the space station and land the booster upright on a pad for later reuse, programming dancing cars and a light show should be child's play. Never the less it is fun to watch.

Merry Model X-mas from Tesla

The S&P has not ended the year in negative territory in a year ending in "5" since 1875. That is a 140-year-old streak. Yes, statistics are a funny thing. If you look long enough and hard enough you can always find something interesting that has zero to do with market fundamentals.

Saudi air defense systems shot down another ballistic missile fired from Yemen that was aimed at oil installations in the southern part of Saudi Arabia. The missile was aimed at the Saudi Aramco oil compound in Jizan. This was the sixth ballistic missile fired toward Saudi oil facilities in the last week. If the Yemen rebels ever successfully hit a Saudi oil facility, we could see oil prices back over $60 within days.

UPS said it would deliver 36 million packages on Tuesday before Christmas. That is double their normal daily volume. The company said it would deliver nearly 630 million packages between Thanksgiving and the end of December. That is a 10.3% increase from 2014.

FedEx said it processed 26 million packages on December 14th, its busiest day ever.

On Wednesday evening, my UPS delivery did not show up until 7:30 at night. I get a lot of deliveries so my UPS driver and I are well acquainted. I asked him how many packages he had left. I climbed into the truck and the answer was about 150 at 7:30. Most importantly, literally 85-90% were from Amazon. I asked him what percentage of his total packages on a daily basis came from Amazon. He guessed at 65% but during the holidays Amazon made up the vast majority.

Here is a thought I had that night. Amazon has a market cap of $311 billion and UPS $68 billion. Amazon has 5 Boeing 767 freighters and is negotiating for 20 more. They are launching "thousands" of new semi trucks to move products between their 60 warehouses and hubs as well as delivering packages to UPS.

What if Amazon bought UPS? Amazon spent $9 billion on shipping expenses in 2014 and that is probably going to be well over $10 billion in 2015. UPS will do $60 billion in revenue in 2015 and more than $3 billion in net income. Amazon is roughly 15% of that revenue. If Amazon bought UPS they could fully control their deliveries and create another $3 billion in profits plus reduce their shipping costs. While Amazon may not want to take on the headache of shipping one billion packages a year, a rather large number of those packages belong to Amazon.

Stranger deals have happened and that would put one more piece of the shipping equation under Amazon control. Just at thought.

Investors took money out of mutual funds last week at the fastest rate in more than two years. Net redemptions hit $28.6 billion for the week ended December 16th according to the Investment Company Institute (ICI). That was the biggest weekly outflow since June 13th. Investors withdrew $11.1 billion from stock funds, $12 billion from bond funds and $5.6 billion from funds with mixed assets. Mutual funds have seen net redemptions every month since July. They saw net inflows in the first six months of 2015.

The bears are loading up for the mother of all put opportunities. Lyons Fund Management tracks the put/call ratios on the S&P-100 ($OEX) because traders in those options are right more often than they are wrong. The threshold level of 2 puts to every call is seen as a market indicator. Between 1999 and 2014 the ratio has only been over 2.0 on 15 days. On Monday, it rose to 3.3. In 1999 and 2007 the extreme readings were accurate predictors of market tops. However, in 2003 and 2014 when the 2.0 level was breached there was no sell off so the indicator is not infallible. The extreme levels we have today are a warning sign according to Lyons. Smart Money is Bearish

Star Wars, the Force Awakens, is set to become the fastest movie to hit $1 billion in sales. Through Christmas Day, the movie had brought in $890.3 million. This weekend is a big weekend for moviegoers now that shopping is over. Jurassic World hit $1 billion in 13 days. Star Wars is expected to surpass $1 billion on Sunday.

Fandango sold the most Star Wars tickets of any outlet. They said the number of people coming back and buying them to see the movie a second time had increased 40% over the last week.


Enter passively and exit aggressively!

Jim Brown

Send Jim an email


"A nation of sheep will breed a government of wolves"

Thomas Jefferson


New Plays

Four Years of Positive Same-Store Sales Growth

by James Brown

Click here to email James Brown

Editor's Note:

Additional Trading Ideas:

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



The Kroger Co. - KR - close: 42.46 change: +0.15

Stop Loss: 40.45
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on December -- at $---.--
Listed on December 26, 2015
Time Frame: Exit PRIOR to earnings in early March
Average Daily Volume = 726 thousand
New Positions: Yes, see below

Company Description

Trade Description:
If you're looking for a company with consistent growth then look no further. KR appears to be the king of same-store sales and recently announced 48 quarters of consecutive same-store sales growth.

KR is in the services sector. According to the company, "Kroger, one of the world's largest retailers, employs nearly 400,000 associates who serve customers in 2,626 supermarkets and multi-department stores in 34 states and the District of Columbia under two dozen local banner names including Kroger, City Market, Dillons, Food 4 Less, Fred Meyer, Fry's, Harris Teeter, Jay C, King Soopers, QFC, Ralphs and Smith's. The company also operates 780 convenience stores, 327 fine jewelry stores, 1,342 supermarket fuel centers and 37 food processing plants in the U.S."

A few months ago BusinessInsider ran an interesting article on KR that suggested the grocery chain is shaping up to be growing competition for the fast-food industry. A recent poll showed that 1 out of 4 consumers would choose Kroger instead of McDonald's to grab a quick bite to eat. KR has become more attractive because they have been expanding their prepared-food selection.

Another interesting tidbit came from CNBC Mad Money's Jim Cramer who said KR has twice the growth of rival Whole Foods Market (WFM). KR's most recent quarterly results showed same-store sales growth of +5.4%, which easily outpaces its rivals.

Speaking of Whole Foods, KR is quickly catching up. WFM built its brand on organic and natural foods, which also happen to have better margins than traditional grocery items. Rivals took notice and KR jumped into organics with both feet. According to JPMorgan, KR is on track to surpass WFM as the biggest seller of organic foods within the next two years. (FYI: Costco actually sells more organic food than anyone else in the U.S. but they are not a traditional grocery story).

Looking at the company's results they continue to beat estimates. KR announced their fiscal 2015 Q1 results on June 18th with earnings of $1.25 per share. That beat estimates of $1.22. Revenues were $33.05 billion, which actually missed estimates. The stock rallied anyway. KR management reaffirmed their fiscal year 2016 earnings forecast for $3.80-3.90 per share (essentially +10% growth).

Their 2015 Q2 results were announced on Sept. 11th. Earnings were $0.44 a share, beating estimates by five cents. Revenues were relatively flat at $25.44 billion. Same-store sales were up +5.3%. Management raised their full-year same-store sales guidance from +3.5%-4.5% to 4.0-5.0%

Q3 earnings came out on December 3rd. Earnings of $0.43 a share beat expectations by four cents. Revenues were still relatively flat at $25.07 billion (from a year ago). Same-store sales were up +5.4%. Management then raised their fiscal 2016 earnings guidance above Wall Street estimates. The stock soared on this report and bullish outlook.

Traders have been reluctant to let go of KR's stock. When the market dipped sharply a couple of weeks ago investors jumped in to buy the dip. Now KR has rebounded back toward its all-time highs. The point & figure chart is very bullish with a long-term target of $62.00. Thursday's intraday high was $42.67. Tonight we are suggesting a trigger to launch bullish positions at $42.75.

Trigger @ $42.75

- Suggested Positions -

Buy KR stock @ $42.75

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

Buy the APR $45 CALL (KR160415C45) current ask $1.10
option price is a current quote and not a suggested entry price.

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

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

Daily Chart:

Weekly Chart:

In Play Updates and Reviews

Stocks Quiet Ahead Of Santa's Visit

by James Brown

Click here to email James Brown

Editor's Note:
The stock market tried to extend its gains to four up days in a row on Thursday. Unfortunately the gains vanished in the last 30 minutes of trading and most of the market closed relatively unchanged for the session.

EXP hit our stop loss.

We want to exit our ATVI trade on Monday morning.

Current Portfolio:

BULLISH Play Updates

Activision Blizzard, Inc. - ATVI - close: 38.92 change: +0.08

Stop Loss: 36.90
Target(s): To Be Determined
Current Gain/Loss: +2.0%
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

12/26/15: It looks like the upward momentum in ATVI may be stalling. Shares only gained about 50 cents last week. We are going to err on the side of caution and suggest an immediate exit on Monday morning to lock in a potential gain. Technically the larger trend is still bullish and shares did bounce off their trend line of support on Wednesday. More aggressive traders may want to keep the trade open and just adjust their stop loss higher.

- Suggested Positions -

Long ATVI stock @ $38.15

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

Long FEB $40 CALL (ATVI160219C40) entry $1.47

12/26/15 prepare to exit on Monday, December 28, at the open
12/23/15 new stop @ 36.90
12/04/15 triggered @ $38.15
Option Format: symbol-year-month-day-call-strike


Cynosure, Inc. - CYNO - close: 43.99 change: +1.08

Stop Loss: 39.90
Target(s): To Be Determined
Current Gain/Loss: +1.0%
Entry on December 23 at $43.55
Listed on December 22, 2015
Time Frame: Exit PRIOR to earnings in February
Average Daily Volume = 214 thousand
New Positions: see below

12/26/15: CYNO displayed relative strength on Thursday with a +2.5% gain and a breakout to new highs. More conservative investors may want to start adjusting their stop loss higher.

Trade Description: December 22, 2015:
CYNO has a product for the narcissist in all of us. Their products and services can help revitalize the skin, remove scars, remove hair, remove tattoos, treat cellulite and body contouring. Naturally business is booming in the United States.

CYNO is part of the healthcare sector. According to the company, "Cynosure develops, manufactures, and markets aesthetic treatment systems that enable plastic surgeons, dermatologists and other medical practitioners to perform non-invasive and minimally invasive procedures to remove hair, treat vascular and benign pigmented lesions, remove multi-colored tattoos, revitalize the skin, reduce fat through non-invasive and minimally invasive laser lipolysis, reduce cellulite, clear nails infected by toe fungus, ablate sweat glands and improve vaginal health. Cynosure also markets radiofrequency energy-sourced medical devices for precision surgical applications such as facial plastic and general surgery, gynecology, ear, nose, and throat procedures, ophthalmology, oral and maxillofacial surgery, podiatry and proctology. Cynosure's product portfolio is composed of a broad range of energy sources including Alexandrite, diode, Nd:YAG, picosecond, pulse dye, Q-switched lasers, intense pulsed light and radiofrequency technology. Cynosure sells its products globally under the Cynosure, Palomar, ConBio and Ellman brand names through a direct sales force in the United States, Canada, Mexico, France, Morocco, Germany, Spain, the United Kingdom, Australia, China, Japan and Korea, and through international distributors in approximately 120 other countries."

The company was able to grow at more than 30% a year for several years. That growth has slowed down somewhat but they are still seeing significant growth. CYNO has beaten Wall Street's earnings and revenue estimates the last three quarters in a row. Their most recently quarterly report was October 27th. CYNO announced their Q3 results. Earnings were $0.21 a share with revenues rising +9.7% to $78.4 million. That beat expectations of $0.17 a share on revenues of $76.6 million. The results were driven by a +29% jump in North American revenues.

CEO Michael Davin commented on his company's quarter, "Continued momentum in North America drove another quarter of strong top-line growth and increased gross margin for Cynosure. Product revenue in North America was up 29 percent year-over-year to $40.8 million, or 63 percent of total product revenue for the quarter, on strong sales of the PicoSure, Icon and MonaLisa Touch product lines... As we discussed during our September 15th Investor Day, the U.S. pre-launch release of SculpSure, our new hyperthermic laser system for non-invasive fat reduction, is underway... We enter our seasonally strongest quarter with solid momentum. Looking ahead, the full U.S. launch of SculpSure is on schedule for the first quarter of 2016, which is planned to coincide with the rollout of the product to our European direct offices in France, Germany, Spain and the United Kingdom as well as our direct office in Australia. Key objectives for SculpSure for the year ahead include: securing additional international registrations, gaining expanded clearances for treatment areas in addition to the flanks and abdomen, pursuing aesthetic indications beyond non-invasive fat reduction and adding new distribution channels."

Shares of CYNO surged on its earnings results. Since then investors have been buying the dips that eventually pushed the stock up toward its all-time highs in the $42.00-43.00 area. Today shares got a boost from an analyst who reiterated their bullish outlook and raised the price target to $52.00. This helped CYNO outperform the major indices with a +3.0% gain and a breakout to new all-time highs.

Technically the trend is bullish. The breakout past resistance in the $42.00 area is also bullish. The point & figure chart is forecasting at long-term $66.00 target. Tonight we are suggesting a trigger to launch positions at $43.55. I am suggesting small positions to limit risk. CYNO does not see a lot of daily trading volume. I will also point out that CYNO does have options but the spreads look too wide to trade so we'll stick to just the stock.

*small positions to limit risk* - Suggested Positions -

Long CYNO stock @ $43.55

12/23/15 triggered @ $43.55


iShares Russell 2000 ETF - IWM - close: 114.50 change: +0.22

Stop Loss: 112.85
Target(s): To Be Determined
Current Gain/Loss: +1.6%
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

12/26/15: Small cap stocks historically tend to outperform in late December and through a good portion of January. Let's hope seasonal trends remain intact.

Last Thursday saw the IWM tag its simple 20-dma and retreat. Tonight we are taking a more cautious approach and raising our stop loss up to $112.85. More aggressive investors might want to leave their stop under last week's low (near $111.50).

No new positions at this time.

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

12/26/15 new stop @ 112.85
12/15/15 triggered @ 112.65
Option Format: symbol-year-month-day-call-strike


Microsoft Inc. - MSFT - close: 55.67 change: -0.15

Stop Loss: 53.85
Target(s): To Be Determined
Current Gain/Loss: +2.0%
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

12/26/15: MSFT slipped 15 cents on Thursday but still managed a +2.75% gain for the holiday-shortened week. That was enough to slightly outperform the major indices. Unfortunately shares really hasn't made much progress over the last three weeks. Tonight we will try and limit our risk by raising the stop loss up to $53.85.

No new positions at this time.

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

12/26/15 new stop @ 53.85
12/01/15 new stop @ $53.20
11/04/15 triggered @ $54.60
Option Format: symbol-year-month-day-call-strike


SolarEdge Technologies - SEDG - close: 27.95 change: +0.03

Stop Loss: 25.85
Target(s): To Be Determined
Current Gain/Loss: +30.3%
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

12/26/15: SEDG eked out another gain on Thursday. The stock looks like it is coiling for another bullish breakout higher with short-term resistance in the $28.00-28.40 region.

Currently our stop is $25.85 but readers will want to seriously consider raising their stop loss at this time (maybe closer to $27.00).

No new positions at this time.

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

12/21/15 new stop @ 25.85
12/16/15 new stop @ 24.95
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


Strayer Education Inc. - STRA - close: 62.91 change: +0.59

Stop Loss: 60.85
Target(s): To Be Determined
Current Gain/Loss: +1.4%
Entry on December 23 at $62.05
Listed on December 21, 2015
Time Frame: Exit PRIOR to earnings in February
Average Daily Volume = 118 thousand
New Positions: see below

12/26/15: STRA displayed relative strength on Thursday. First the stock found support near $62.00 (prior resistance) and then shares managed to rally +0.9%, outperforming the broader market.

STRA could be due for a dip after posting gains in six out of the last seven trading days. Tonight we are adjusting our stop loss up to $60.85.

Trade Description: December 21, 2015:
STRA has been outperforming the market since its bottomed in the low $40s in July this year. The stock is currently up about +45% from its 2015 lows.

STRA is in the services sector. According to the company, "Strayer Education, Inc. is an education services holding company that owns Strayer University. Strayer's mission is to make higher education achievable for working adults in today's economy. Strayer University is a proprietary institution of higher learning that offers undergraduate and graduate degree programs in business administration, accounting, information technology, education, health services administration, public administration, and criminal justice to working adult students. The University includes Strayer@Work, which serves corporate clients by delivering the next generation of performance improvement and workforce development. Strayer University also offers an executive MBA online and corporate training program through its Jack Welch Management Institute. The University is committed to providing an education that prepares working adult students for advancement in their careers and professional lives."

The for-profit education stocks have had a hard time in recent years. Accusations of predatory practices and misleading advertising has prompted tougher government oversight, new regulations, and fueled investor concerns (and lots of selling). Last year (July 2014) rival Corinthian Colleges unexpectedly shut their doors without warning and left students without a diploma and lots of student debt. Then several weeks ago, in early October, Apollo Education (APOL), the group that runs University of Phoenix, disclosed it was on probation with the Department of Defense and no longer allowed to recruit students on U.S. military installations. Shares of APOL plunged -10% on the headlines and it pressured the rest of the group lower.

STRA has managed to rally past these concerns, albeit after a very rough start to 2015. Looking at the last couple of years STRA soared in 2014 with a rally from the $33 area up to $80 by November 2014. That was the peak. STRA plunged from November 2014 until July 2015. Then suddenly shares reversed sharply higher following a better than expected earnings report.

It was July 29th when STRA announced their Q2 earnings results. Wall Street was expecting a profit of $0.99 a share on revenues of $108.1 million. STRA beat estimates with a profit of $1.11 a share. Revenues were down -2.6% but better than expected at $109.8 million. The company beat estimates again in October. STRA's Q3 results were $0.32 a share on revenues of $99.1 million, both above expectations.

The stock displayed relative strength last week. That relative strength continued today with a +2.8% gain and a breakout above round-number resistance at $60.00. If STRA can breakout past its recent intraday highs I wouldn't be surprised to see it rally toward $70. At the moment the point & figure chart is bearish but a rise above $62.00 will produce a new triple-top breakout buy signal.

Today's intraday high was $61.12. The November 30th intraday high was $61.62. Tonight we are suggesting a trigger to launch small positions at $62.05. We want to keep positions small to limit risk. STRA have proven over and over again that it can be a volatile stock. That's probably why the option spreads are so wide (and makes the options a little less appetizing).

A note on student debt - ballooning student debt has been a major financial concern for the U.S. over the last few years. Today student debt is about $1.2 trillion. That's more than auto loans or credit card debt and is only second to mortgage debt. Prognosticators have been warning about the bubble bursting in student debt for a while. It hasn't happened yet. I doubt it will happen in the next few weeks but investors should be aware that shares of STRA might be sensitive to any negative headlines regarding the subject.

*small positions to limit risk!* - Suggested Positions -

Long STRA stock @ $62.05

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

Long APR $65 CALL (STRA160415C65) entry $4.20

12/26/15 new stop @ 60.85
12/23/15 triggered @ $62.05
Option Format: symbol-year-month-day-call-strike


BEARISH Play Updates

GameStop Corp. - GME - close: 28.37 change: -0.38

Stop Loss: 31.25
Target(s): To Be Determined
Current Gain/Loss: +6.1%
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

12/26/15: GME underperformed the market on Thursday with a -1.3% decline. Thursday's weakness is encouraging but I wouldn't chase GME here. 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

12/17/15 new stop @ 31.25
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: 46.15 change: -0.40

Stop Loss: 47.35
Target(s): To Be Determined
Current Gain/Loss: -0.9%
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

12/26/15: HOG did not see any follow through on Wednesday's big bounce. The stock reversed lower and fell -0.85% on Thursday. Keep an eye on the $46.00 level, which was previous support and could be support again.

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

12/16/15 new stop @ 47.35
12/11/15 triggered @ $45.75
Option Format: symbol-year-month-day-call-strike


iPath S&P500 VIX Futures ETN - VXX - close: 19.62 change: +0.35

Stop Loss: None, no stop at this time.
Target(s): $16.65
Current Gain/Loss: +10.1%
2nd position Gain/Loss: +32.4%
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

12/26/15: Investors may have bought a few extra put options to protect themselves over the long Christmas weekend. The VXX managed a +1.8% gain in spite of the market's relatively quiet session.

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



Eagle Materials Inc. - EXP - close: $61.15 change: +0.02

Stop Loss: 61.65
Target(s): To Be Determined
Current Gain/Loss: -5.1%
Entry on December 21 at $58.65
Listed on December 19, 2015
Time Frame: Exit PRIOR to earnings in February
Average Daily Volume = 800 thousand
New Positions: see below

12/26/15: EXP ended Thursday's brief session virtually unchanged. Unfortunately the stock did see a small rally intraday that managed to hit our stop loss at $61.65, closing our play.

- Suggested Positions -

Short EXP stock @ $58.65 exit $61.65 (-5.1%)

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

FEB $55 PUT (EXP160219P55) entry $2.18 exit $1.10 (-49.5%)

12/24/15 stopped out @ 61.65
12/21/15 triggered @ $58.65
Option Format: symbol-year-month-day-call-strike