Option Investor

Daily Newsletter, Tuesday, 12/29/2015

Table of Contents

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

Market Wrap

Let the Window Dressing Begin

by Jim Brown

Click here to email Jim Brown

The Santa rally got off to a late start but fund managers kicked it into high gear with their window dressing moves. With tax loss selling over, retail investors were also in a buying mood.

Market Statistics

On Monday, the Dow dipped -113 by late morning but recovered to lose only 24 points. That recovery primed the index for a good news short squeeze. After the rebound from Monday's lows, positive markets in China and Europe, a rally in oil and commodities overnight and some decent economic data, buyers were ready to go at the open today. The Dow gapped open nearly 200 points as shorts ran for cover on the bullish headlines.

The Case Shiller S&P Home Price Index for October showed prices rose +5.5% in the top 20 cities in the index. Nationally prices rose +5.17%. This was the fastest growth in more than a year.

Consumer Confidence for December spiked +6.5 points to 96.5, up from the 90.4 previously announced for November. However, the November number was revised higher to 92.6. The present conditions component rose from 110.9 to 115.3. The expectations component rose from 80.4 to 83.9.

In the details, the number of prospective auto buyers declined from 12.7 to 10.5. Homebuyers declined from 6.0 to 5.8 while appliance buyers rose from 49.5 to 51.5. According to analysts, the decline in buying plans was driven by the Fed rate hikes. A 25 basis point hike would have no real impact but it is the idea that the Fed is going to keep hiking rates that is depressing sentiment.

The headline number was helped by the constantly falling gasoline prices and the warm weather. Frigid winter weather typically weighs on consumer confidence. Warm weather and blue skies are uplifting for sentiment.

The trade deficit for November increased slightly from -$58.4 billion in October to -$60.5 billion. Consumer goods imports declined slightly from $181.7 billion to $181.5 billion. However, exports declined from $123.3 billion to $121.0 billion. Blame this on the strong dollar. Once we actually begin to export crude oil next year the deficit should decline.

The Texas Service Sector Outlook Survey for December declined from 3.6 to 3.3. The revenue component increased from 10.3 to 15.2 but the expectations for future activity component declined from 10.9 to 7.9. Employment improved slightly from 10.6 to 12.3 and hours worked improved from 1.5 to 6.6. Overall, it was a decent report but the activity levels have stagnated over the last five months because of further declines in the energy sector in Texas.

Moody's Chart

There are no reports remaining this week that can move the market other than the EIA Oil Inventories on Wednesday morning. Another big drop in inventories could cause oil prices and energy stocks to rise and lift the market. Conversely, a big build in inventory levels could weigh on the market.

The Dow rallied on help from multiple stocks today. DuPont (DD) gained +1.10 after outlining 1,700 job cuts stemming from its coming merger with Dow Chemical (DOW). These job cuts will be in Delaware, where the company has been based for more than 200 years. The workers will be given separation packages, career placement services and retraining allowances. DuPont was forced to make the news public during the holidays because of a December 31st deadline for warning of impending job changes. The State of Delaware has a notice requirement for pending layoffs.

The global restructuring plan is expected to cut costs by $700 million and a 10% cut in the global workforce, which means 5,400 jobs could be cut overall. The cuts will result in a $780 million pre-tax charge to earnings. The specialty products business will be based in Wilmington Delaware. The material science business will be based in Midland Michigan. The headquarters for the agriculture business is still unknown.

Pep Boys (PBY) spiked again as Carl Icahn sweetened his bid even more from $16.50 to $18.50 after Bridgestone raised their bid to $17 on Friday. Bridgestone had originally offered $15 and Pep Boys had agreed to the offer back in late October. Initially Icahn had decided not to bid for Pep Boys but then changed his mind in December. A bidding war followed and Icahn appears to be the winner. After the close today, Bridgestone said it would not counter the last Icahn bid. On Friday Bridgestone and Pep Boys amended their agreement to the new price of $17 and raised the breakup fee from $35 million to $39.5 million.

Qualcomm (QCOM) rallied $1.30 after the company said it signed two big licensing deals with Chinese telecom companies. Tianyu and Haier both signed 3G/4G patent license agreements. Qualcomm has had some problems in the past with patent deals to Chinese companies. Doing business in China that involves giving Chinese companies access to proprietary technology is a basket of snakes. Technology tends to leak away and royalties tend to be understated. Qualcomm has been fighting this problem since early 2014 and the smaller than expected royalty payments caused Qualcomm to disappoint on earnings multiple times. This has pressured QCOM shares to decline from $81 to $50.

Surely, Qualcomm has learned from its past experiences and the two new agreements are iron clad, as much as they can be in China. Qualcomm has a market cap of $76 billion and $21 billion in cash. They are currently in a $10 billion stock buyback program. In May, they raised $10 billion with a debt offering, their only long-term debt, to fund the stock buyback program rather than repatriate the $21 billion in cash from overseas and pay a huge tax bill. They are paying a dividend of $1.92 or 3.87% yield. I would be a buyer of QCOM at this level after those licensing deals.

Honeywell (HON) shares gained $1 after the company said it had completed the $5.1 billion acquisition of meter maker Elster. Elster was a division of British manufacturer Melrose Industries.

Dunkin Donuts (DNKN) and Madison square Garden (MSG) announced a multi-year marketing partnership naming Dunkin products the Baked Goods and Breakfast Sandwich of the New York Knicks, New York Rangers, New York Liberty and Madison Square Garden. Really? They must be hard up for endorsements. However, fans will now be able to enjoy Dunkin products from two locations on the Garden's concourse. The Dunkin brand will also be prominent at all MSG games and events with courtside and in-arena signage, spots on GardenVision along with custom web pages on Knicks.com and NYLiberty.com.

Apple (AAPL) shares rallied for a change after mobile analytics firm Flurry said Apple won the activation war from Dec 18th through Dec 25th with 49.1% of all mobile activations. Samsung was second at 19.8%, Nokia 2.0%, LG 1.7% and Xiaomi 1.5%. This was down from 51.3% in the same period in 2014 but Apple is still way ahead of its rivals. More than 27% of the activations were for the iPhone 6 Plus and 6S Plus. Android saw more than 50% of its activations in the plus sized category.

DigiTimes.com said iPhone shipments in Q4 will be 5% to 10% below original expectations. The news came from Taiwan based supply chain providers. The sources said factory shipments are in line with sales of 72-75 million units, compared to prior estimates for 76-78 million units. Shipments for Q1 have also been lowered to 52-56 million, down from 58-60 million in prior forecasts. That represents a decline of 12% to 15% from year ago levels. iPhone Sales Slowing

Factories in the supply chain have reduced overtime shifts since November and could lengthen the time off for the Lunar New Year holidays. Foxconn Electronics iPhone plant is already talking about plans to possibly extend the holidays.

Apple shares rallied $2 on the activation news and began to fade late in the afternoon when the DigiTimes story was reported. I would be shorting Apple on this bounce. There is likely to be a decent decline into earnings on January 27th.

Whole Foods Market (WFM) agreed to pay $500,000 to end an overcharging probe by New York City. Shares were up slightly earlier in the day but faded into the close. This is a slap on the wrist because $500K is nothing but pocket change to Whole Foods. The company said it agreed to the payment in order to put the problem behind them.

Whole Foods has a lot more to worry about than NYC. The major chains are killing them. Kroger, Safeway, Sprouts, Fresh market and Walmart are all offering fresh organic items at a fraction of Whole Foods prices. They are no longer the king of the organic market and their declining earnings are the proof. I believe the rebound to $35 is a new short opportunity on WFM.

Tesla (TSLA) shares rallied $8 after news broke they were looking to hire thousands over the next few years. Tesla has already grown from 900 in its infancy to more than 14,000 today but to build "millions and millions" of cars as Elon Musk is predicting and it will require a lot more people. They are planning on adding 4,500 in California alone and currently have 1,600 open positions. There is a bidding war in progress in California. Apple has hired more than 60 former Tesla employees and is reportedly offering a 60% salary bump plus $250,000 signing bonuses to Tesla employees. Meanwhile Tesla has hired more than 160 former Apple employees. Elon Musk said he wants to have his self-driving cars on the road before 2020.

Intel (INTC) said it completed the $16.7 billion acquisition of Altera (ALTR). The company said Altera is "a great first acquisition." That immediately put a bid under the rest of the semiconductor sector.

Lattice Semiconductor (LSCC) spiked +8% on the Altera completion. The CEO said Intel will probably use Altera to focus on chips related to the PC market and that could boost Lattice's total addressable communications market by $300-$400 million.

Crude prices rose $1 in regular trading to $37.81 but settled to $37.33 in afterhours after the API inventory report showed an unexpected gain of +2.9 million barrels. This is the normal inventory reduction period in December where refiners let their inventories decline to reduce their property taxes on December 31st. It is unusual for inventories to rise in this period when everyone is expecting a decline. The average decline for December is now only -1.7 million barrels compared to an average decline of -5.5 million. Prices are likely to fall further if the EIA report on Wednesday morning confirms the decline.


The short covering, window dressing and buying for 2016 succeeded in lifting the S&P back over 2,059 and into the green for 2015. The close at 2,078 should give the index enough of a cushion to survive the next two days until the end of the year.

Fund managers desperately want the markets to post a gain for 2015 even if it is just a few points. They need it for their advertising. They do not want investors reading the paper this weekend and seeing headlines about the market closing down for the year for the first time since 2008.

The Dow gained +193 points and put it in range of a positive year-end close at 17,824. That is 104 points above where we closed today and with a little bit of luck and some skillful market manipulation they should be able to push the Dow into the green as well.

The Nasdaq is already well into the green with an +8% gain for the year. Today's rally cemented that positive 2015 close. It would take a nuclear explosion to knock the Nasdaq back -320 points over the next two days to finish in the red.

The Nasdaq 100 is only 28 points away from a new historic closing high at 4,720. If the big cap techs can manage one more day of decent gains, a new high could change the complexion of the entire market.

The biotech index gained +1.6% today and helped power the Nasdaq and the Russell with its gains. The IBB is up +15% over the last three months alone despite a big drop in early December.

The S&P vaulted past resistance at 2,065 and squeaked past resistance at 2,075 by 3 points. The close at 2,078 is still well below major resistance at 2,105 and 2,116 so I seriously doubt we will be seeing a new high over the next two days. I would be thankful just to finish the year over 2,100. Support is now 2,060 and Monday's low at 2,045.

The Dow still has major downtrend resistance at 17,825 and exactly where it needs to be to close the year with a 2-point gain. This should make Thursday's market a nail biter unless we have a blowout of some sort on Wednesday. Historically the last two days of December are negative for big caps but the market has ignored all the seasonal trends this year.

Amazon, Priceline and Google were the big gainers but Apple's $2 gain contributed +8 points to the Nasdaq. The biotechs were the leaders with a capable assist by semiconductor stocks. Tech stocks are typically strong over the next several weeks so assuming there is no immediate crash when the calendar turns over to 2016 we should see a new high on the Nasdaq 100 in the near future. Whether it will stick or not is the real question.

Support on the Nasdaq Composite is 5,000 followed by 4,935. Resistance is firm at 5,160 and 5,231.

The Russell 2000 is doing its imitation of the "The Little Engine that Could" as it struggles against a big deficit from the early December decline. You can almost hear it saying, I think I can, I think I can, as it slowly edges higher.

With resistance at 1,165 and again at 1,200 the odds of a big move are slim. This is seasonally the best time of the year for the small caps but it appears managers are storing their money in the big caps this year in case they have to exit in a hurry in January.

With the goal of closing the markets in the green for the year, I would expect fund managers to continuing buying the stocks that have the most impact on the indexes. They are within reach on the Dow but the last two days of the month are typically negative as aggressive traders try to create short positions ahead of a January decline. Many investors are holding profitable positions and waiting to sell until January in order to delay paying taxes for another year. There is normally a block of traders that try to anticipate that move and jump in front by shorting stocks on the last day of December.

With seasonal trends failing this year we cannot count on that selling and we cannot count against it. If you do not have an urgent desire to own something over the next several days I would recommend waiting until January and see what direction the market takes when the calendar turns over. The first two days are typically bullish as fund managers put end of year retirement contributions to work so it will take more than a couple days for a direction to appear.

The last two January's have been negative but the prior three were strongly bullish. Let's hope the pendulum swings back into the bulls favor this January.



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New Plays

Email Is The No. 1 Threat

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:



Proofpoint, Inc. - PFPT - close: 67.74 change: +1.25

Stop Loss: 64.35
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on December -- at $---.--
Listed on December 29, 2015
Time Frame: Exit PRIOR to PFPT's earnings report in late January
Average Daily Volume = 638 thousand
New Positions: Yes, see below

Company Description

Trade Description:
High-profile cyber security firms get a lot of press about their firewalls and other defensive capabilities. Yet email remains the biggest threat to corporations. PFPT has become a leading provider of security to protect companies through their secure email solutions.

PFPT is in the technology sector. They are part of the software industry. According to the company, "Proofpoint Inc. is a leading next-generation security and compliance company that provides cloud-based solutions for comprehensive threat protection, incident response, secure communications, social media and mobile security, compliance, archiving and governance. Organizations around the world depend on Proofpoint's expertise, patented technologies and on-demand delivery system. Proofpoint protects against phishing, malware and spam, while safeguarding privacy, encrypting sensitive information, and archiving and governing messages and critical enterprise information."

The company has beaten Wall Street estimates the last few quarters. PFPT has managed to post quarterly sales growth in the +35% range for the last four quarters in a row. Their most recent report, 2015's Q3, was their 49th consecutive quarter of sequential sales growth.

Speaking of PFPT's Q3 report, the company reported a loss of ($0.06) a share. That was better than Wall Street's estimates for a loss of ($0.11). Revenues were up +37.4% to $69.15 million, significantly above estimates. Management provided mixed guidance with an earnings forecast slightly below analysts' projections but revenues above expectations.

The stock shot higher on its Q3 results. By late November PFPT was trading at all-time highs in the $75.00 region. Then on December 3rd the stock plummeted due to bearish comments from noted short-seller Carson Block. Mr. Block is the founder of research firm Muddy Waters LLC and he tweeted that PFPT was his top short position. Block claims that PFPT is lying about their organic growth numbers and suggested insiders were selling at the highs. The stock plunged from about $73.00 to $62.50 and closed the day just under $70.00.

Multiple Wall Street firms defended PFPT saying that Block's comments were just "noise" and without any real substance. A few days ago FBR & Co listed PFPT as one of their best bets in the technology sector. According to FBR, "In our view, PFPT remains in the very early stages of a massive growth story with SaaS email security front and center as a product catalyst heading into 2016."

The stock has found support in the $63-66 zone the last couple of weeks. This looks like a new short-term tradable bottom in the stock. PFPT displayed relative strength today with a +1.8% gain. If this rally continues the stock could see some short covering. The most recent data listed short interest at 17% of the 39.0 million share float.

Tonight we are suggesting a trigger to launch bullish positions at $68.15. We'll plan on exiting prior to PFPT's earnings report in late January.

Option warning - PFPT does have options but I want to caution readers that the bid/ask spreads are relatively wide, which makes trading the options a bit more dangerous.

Trigger @ $68.15

- Suggested Positions -

Buy PFPT stock @ $68.15

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

Buy the FEB $70 CALL (PFPT160219C70) current ask $4.10
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

Yes, Virginia, There Is A Santa Claus Rally

by James Brown

Click here to email James Brown

Editor's Note:
The normal seasonal trends resumed for the stock market and the U.S. market delivered widespread gains on Tuesday. The S&P 500 is back in positive territory for the year.

The Santa Claus rally normally starts on December 24th and runs through the first couple of trading days of January.

Current Portfolio:

BULLISH Play Updates

Cynosure, Inc. - CYNO - close: 43.75 change: +0.61

Stop Loss: 39.90
Target(s): To Be Determined
Current Gain/Loss: +0.5%
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

12/29/15: CYNO managed to outpace the broader market with a +1.4% gain on Tuesday. Readers 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: 115.20 change: +1.23

Stop Loss: 112.85
Target(s): To Be Determined
Current Gain/Loss: +2.3%
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

12/29/15: The IWM small cap ETF gapped higher, then filled the gap with a dip back to $114.00, and then rebounded back toward its highs for the session. By the end of the day the IWM had gained +1.0% and looks poised to challenge short-term resistance at its 50-dma and the $116.00 level.

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

The Kroger Co. - KR - close: 42.64 change: +0.19

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

12/29/15: KR slowly drifted higher on Tuesday and only added +0.44% by the close. Shares do look ready to breakout to new highs. Our suggested entry point to launch bullish positions is $42.75.

Trade Description: December 26, 2015:
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)

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

Microsoft Inc. - MSFT - close: 56.55 change: +0.60

Stop Loss: 53.85
Target(s): To Be Determined
Current Gain/Loss: +3.6%
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

12/29/15: MSFT had another good day with shares gaining +1.0%. That left the stock at levels not seen since March 2000.

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

National Health Investors - NHI - close: 61.89 change: +0.37

Stop Loss: 59.85
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on December -- at $---.--
Listed on December 28, 2015
Time Frame: Exit prior to earnings in February
Average Daily Volume = 251 thousand
New Positions: Yes, see below

12/29/15: NHI gapped down this morning, likely due to shares trading ex-dividend, but I can't confirm it. Shares still managed a +0.6% gain on the session. There is no change from last night's new play description. Our suggested entry trigger is $63.05.

Trade Description: December 28, 2015:
Assisted living and senior (citizen) housing is a growth business. Nearly 10,000 baby boomers hit retirement age every single day. The probability of becoming disabled and needing care or becoming cognitively impaired is almost 70% for people age 65 and older. One way to play this major demographic trend is NHI.

NHI is considered part of the financial sector because it is a REIT. According to the company, "National Health Investors, Inc., a Maryland corporation incorporated and publicly listed in 1991, is a healthcare real estate investment trust (REIT) specializing in financing healthcare real estate by purchase and leaseback transactions, RIDEA transactions and by mortgage loans. NHI's investments include senior housing (assisted living, memory care, independent living and senior living campuses), skilled nursing, medical office buildings and specialty hospitals." They currently have 188 properties in 31 states. More than 60% of their housing is focused on senior living.

Shares of NHI did not have a very good year. The stock peaked near $77.00 a share in January 2015 and plunged toward $54 by early September. The $54.00 region was major support and NHI began to bounce. The bounce was likely driven by income investors since NHI, at its lows, at a dividend yield of more than 6%. The stock still yields more than 5.4% today. The company's next dividend ($0.85) is coming up in January.

Technically the stock appears to be turning around. November saw NHI shares produce a higher low. Lately investors have been buying the dips. The last few days have seen the stock breakout past significant resistance in the $61-62 area. The point & figure chart is bullish and forecasting a long-term target of $74.00.

Today's display of relative strength (+1.3%) and breakout above $62.00 looks like a bullish entry point. However, the simple 200-dma could be resistance and it is directly overhead at $62.84. Therefore we are suggesting a trigger to launch bullish positions at $63.05. We will plan on exiting prior to NHI's earnings in February.

Trigger @ $63.05

- Suggested Positions -

Buy NHI stock @ $63.05

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.

SolarEdge Technologies - SEDG - close: 27.53 change: -0.07

Stop Loss: 26.45
Target(s): To Be Determined
Current Gain/Loss: +28.3%
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

12/29/15: SEDG did not participate in the market's widespread rally today. Shares merely drifted sideways and ended the day with a minor loss. We are turning more cautious and moving our stop loss higher to $26.45. More conservative investors may want to just take some money off the table now instead.

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

12/29/15 new stop @ 26.45
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: 62.36 change: -0.71

Stop Loss: 60.85
Target(s): To Be Determined
Current Gain/Loss: +0.5%
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

12/29/15: In the United States a blinking yellow light signals drivers to be cautious. The action in STRA today is definitely flashing a caution signal. Shares did not participate in the market's rally. Instead the stock fell -1.1% and snapped a five-day winning streak. Furthermore today's move has generated a bearish engulfing candlestick reversal pattern.

No new positions at this time.

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

12/29/15 Caution - the action today is a potential bearish reversal
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: 28.43 change: -0.04

Stop Loss: 31.25
Target(s): To Be Determined
Current Gain/Loss: +5.9%
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

12/29/15: It was another quiet session for shares of GME. The fact that shares did not participate in the market's widespread rally today is a good sign for bearish traders.

More conservative investors may want to lower their stop loss. 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: 46.02 change: +0.25

Stop Loss: 47.35
Target(s): To Be Determined
Current Gain/Loss: -0.6%
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

12/29/15: Hmm... traders bought the dip in HOG twice near $45.60 today. The afternoon bounce pushed HOG to a +0.5% gain. That underperformed the broader market but doesn't really inspire confidence if you're bearish. Currently HOG is trading in the middle of its recent $45.00-47.00 trading range.

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: 19.07 change: -0.32

Stop Loss: None, no stop at this time.
Target(s): $16.65
Current Gain/Loss: +12.6%
2nd position Gain/Loss: +34.3%
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

12/29/15: The VXX continues to sink and lost -1.65% today. If this stock market rally continues we could see the VXX retesting its recent lows near 18.00 soon.

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