Option Investor

Daily Newsletter, Wednesday, 12/30/2015

Table of Contents

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

Market Wrap

Some Profit Taking

by Keene Little

Click here to email Keene Little
Heading into the final two trading days of the week/month/year had some traders taking money off the table before we enter the new year. The past two years were not kind to bulls in January and that could be causing some concerns about this coming January.

Today's Market Stats

Profit taking hit the market early today and it could be the start of a deeper pullback/selloff if it follows the pattern in December 2014. But the last day of December in front of another holiday weekend leaves both sides guessing what might happen in a low-volume environment.

As expected, today's trading was another low-volume day, about the same as yesterday, but the internals were a little more bearish than yesterday's bullish internals. This could be a clue about what to expect on Thursday, the last trading day of the week/month/year. In 2014 the stock market peaked on December 29th (Friday, December 26th for the DOW) and started a strong selloff in the final two days of the month

The strong selling at the start of 2015 continued for the first three trading days of January and SPX dropped about 101 points from the December 29th high before starting a whippy period for the rest of the month. In 2013 the market peaked on December 31st and then got whippy for the first half of January before selling off strong into the end of the month where SPX dropped about 110 points. Fear of something similar happening could be prompting some profit taking before the end of this year.

If we see more selling tomorrow I suspect early next week could see additional selling so take your clues from tomorrow's price action and hedge/protect your positions accordingly.

The only economic report of meaning today was the Pending Home sales for November, which declined -0.9%. That was a disappointment since the market expected +0.5% following +0.4% in October (which was revised higher from +0.2%). The month of November did not experience much in the way of bad weather so the decline in home sales is not a good sign when combined with the many other economic reports showing a slowing economy. Then when you combine the slowing corporate earnings and a Fed that is trying to tighten monetary policy you have an environment that is not supportive of a stock market rally.

Moving into January could be a period when fund managers decide they'd rather be in cash than in riskier asset classes. We've seen a strong decline in the junk bond market and that's expected to only get worse, especially from those companies that borrowed heavily but are now suffering from an earnings decline and do not have the ability to service their debt. This is happening to more and more companies but the energy field is the poster child for this problem.

And then we throw in all the debt for automobiles, much of which is has been taken on by "under" qualified individuals (does fogging a mirror ring any bells?) and student loan debt, we have trillions of borrowed money that is in jeopardy of never being paid back. Higher numbers of bankruptcies and debt forgiveness are expected and it's all part of what will become the next deflationary wave. Holding the market up into the end of the year (we'll see if SPX can hold above 2058.90 following today's low near 2062) could be followed by anxious fund managers quickly unloading inventory as the signs of economic weakness continue to grow and that's what makes this January again especially vulnerable to a strong selloff.

We can of course only speculate what the market will do. It has held up in the face of deteriorating fundamentals for a long time and it could continue to do so. You know the saying -- the market can remain irrational far longer than you can remain solvent fighting the market. So we'll stick with the charts and look for guidance from the price action.

There is the potential for the market to hold up at least into April if it chops its way higher as depicted on the SPX weekly chart below. I say choppy because of the way it has started and if it continues higher it will likely form a rising wedge (ending diagonal 5th wave) that would frustrate traders on both sides. The kinds of strong reversals we've been seeing would likely continue. This week's price action provides very few clues about what to expect. Price poked above the 50-week MA, near 2063, but closed on it today. Closing above 2058.90, to keep it in the green for the year, and above its 50-week MA would at least keep the bullish hopes alive as we head into January. But a decline below the December 14th low near 1993 would be a bearish warning sign that much strong selling could follow.

S&P 500, SPX, Weekly chart

Tuesday's rally brought SPX up to the top of a parallel down-channel for price action following the November high and today's selloff leaves it looking like a test of the top of the channel and a bearish kiss goodbye today. But it only pulled back to slightly below its 50-dma, near 2067, and slightly above its 200-dma near 2061. A rally above Tuesday's high at 2081.56 would point to at least a test of price-level S/R near 2090 and then perhaps its downtrend line from July-November, near 2106. But a drop below Monday's low at 2044 would be a bearish heads up and with the risk of a strong selloff in January I'd be looking to play the short side from there.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2090
- bearish below 1993

One pattern I've been monitoring is an a-b-c bounce pattern off the December 14th low. Two equal legs up points to 2088.94 and with today's 3-wave pullback there is the potential for another rally leg to follow. That's why a rally above yesterday's high would have me looking for 2090. But there is the potential for a very bearish pattern to now be followed by a strong selloff in the weeks ahead. The bearish wave count calls the setup here the start of 3rd waves at multiple degrees (a 3rd of a 3rd wave to start a larger 3rd wave in the decline from July). It's this potential that could drop SPX in a hurry down to the trend line along the lows from November 16 - December 14. That would mean down to about 1970 in the first week of January, which would be a decline of about 110 points from Tuesday's high. That in turn would match what happened into the January lows in 2013 and 2014. The bulls need to rally the market on Thursday otherwise we could be looking at a nasty week for the bulls next week.

S&P 500, SPX, 60-min chart

The DOW's pattern is very similar to SPX except it's a little weaker. It has not been able to break through its downtrend line from December 2-16, which it had poked above yesterday but closed on it. Today's little selloff fits as a bearish kiss goodbye against resistance. But, similar to SPX, it has only pulled back in a 3-wave pattern and is holding above its broken 20- and 200-dmas, now near 17531 and 17536, resp. It closed slightly below its 50-dma near 17618. Below Monday's low at 17437 would be more bearish and a strong selloff could follow as a 3rd of a 3rd wave down in its decline from November. From a bullish perspective, I see the potential for at least one more push higher to 17823, although not likely tomorrow. Of course never say never since it's possible the DOW could be rallied 220 points in a low-volume environment. In addition to that level being the 2014 closing price, it's also the location of the May-November downtrend line.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 17,850
- bearish below 17,437

Since the November high and low NDX has been chopping sideways within the November price range of roughly 4500 to 4740. The sideways consolidation following the rally off the August low can certainly be considered a bullish continuation pattern but it's also been a common topping pattern at important highs. I see the potential for price to chop its way a little higher into January and reach the price projection at 4820, which is where the 5th wave of the move up from August would equal 62% of its 1st wave. But following a failed back-test (so far) of its broken uptrend line from August-September it's currently a setup to get short.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4740
- bearish below 4513

The poor RUT will finish 2015 well into the red, currently down -4.6%. Compared to the NDX, currently up +9.8%, it's a little surprising the small caps haven't done better this year. The main culprits are the small energy-related stocks. Oil service stocks are down -12.6% while oil is down "only" -11.6%. December is supposed to be a strong month for the RUT, as can be seen on the chart below, which shows the typical price action during December. The RUT is the top (blue) line and it shows it's typically up about 3.25% for the month. This month it's down -4.0%. Not a good showing at all and in fact most indexes are finishing in the red for December. The utility index (a defensive sector) is in the green (+3.4%).

December pattern

The RUT had an impulsive decline from December 2nd into the December 14th low. That has been followed by a choppy bounce pattern which has it looking more like a correction to the decline, which in turn suggests another leg down once the bounce completes. I see the potential for another small bounce higher, perhaps up to 1164-1170, before turning back down but it's also quite possible the next leg down started today.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1170
- bearish below 1120

The bond market continues to act confused as the sideways chop continues. The TNX (10-year yield) chart below shows the bounce off the December 11th low has it back up testing its downtrend line from June 2007 - December 2013, which is the 4th time since the November 9th back-test. The more times resistance is tested the weaker it becomes and therefore there's a decent chance it will break this time, in which case I'd look for a rally (with additional selling in bonds) at least up to its broken uptrend line from July 2012 - May 2013, currently near 2.4%. It would be more bullish above that level. But the choppy price pattern suggests we are likely to see a continuation of the sideways consolidation into January/February before breaking down. Below 2.08% would be more bearish and below 2.0% would indicate the next leg down is underway. I continue to believe TNX will be below 1% before the bond bull market has completed.

10-year Yield, TNX, Daily chart

A slightly different perspective is offered by TLT, the 20+ year Treasury bond ETF. The June-August rally has been followed by a sideways consolidation and it's possible to call the pattern complete (a-b-c-d-e wave count off the August high). If so it will then be followed by another rally leg to at least match the June-August rally, which points to 133.71 for two equal legs up from June, or the 62% projection at 128.34 for what could be a larger sideways consolidation pattern. This bullish pattern calls for a rally in Treasuries from here so a bounce off its uptrend line from December 2013 - June 2015 would give traders a good setup to get long and then use the low for your stop.

20+ Year Treasury Bond ETF, TLT, Daily chart

The banking index, BKX, has been unable to break through its nest of 20-, 50- and 200-dmas, currently located between 74.00-74.50, and today's decline dropped it back below those moving averages. There's nothing really firm to indicate one direction vs. the other since it's chopping up and down inside a contracting price range since the December 4th high. At this point I'd say BKX needs to break above 76.10 to look more bullish and below 71.82 (the December 21st low) to look more bearish. I think the setup here is bearish but there's a lot the bears still need to do in order to confirm the setup.

KBW Bank index, BKX, Daily chart

Since the December 14th and 18th lows for the TRAN I've been thinking we'll get a bigger bounce correction before heading lower again. That remains a possibility and it's what I show on its chart below. But the failure to get back above price-level S/R near 7650, as well as its 20-dma, currently near 7639, is bearish. A correction to the leg down from November 20th might go sideways instead of creating a higher bounce before heading lower again. As long as it remains below 7650 it certainly remains bearish.

Transportation Index, TRAN, Daily chart

I normally show a weekly chart of the U.S. dollar to keep the sideways chop since March in perspective. I've been showing an expectation for the sideways chop to continue into the first half of 2016 and that hasn't changed. Trying to figure out how the choppy pattern might play out is the difficult task but for the moment we have a good setup for at least another leg down for a 3-wave pullback from December 3rd. Two equal legs down points to 95.95 and that projection crosses its uptrend line from August-October mid-January. A drop below 95.95 would be more immediately bearish but likely only for a decline to the bottom of this year's trading range (93-94) before heading back up.

U.S. Dollar contract, DX, Daily chart

Similar to what I said about the TRAN above, I've been expecting a higher bounce correction for gold before it heads lower. But the more it consolidates near its December 3rd low the more it's going to look like a sideways correction instead of a higher bounce correction. I see the potential for a bounce up to about 1090 and then 1116-1118 if it climb above 1090 but that bounce needs to get started sooner rather than later. Regardless of the bounce/correction, the larger pattern continues to suggest lower prices before we'll see a good opportunity to start loading up on the shiny metal (silver too).

Gold continuous contract, GC, Daily chart

Crude inventories bumped back up this past week, +2.629M barrels, which follows a drop of -5.877M barrels the prior week. This morning's report might have had something to do with the pullback in oil today but at the moment it's hard to determine whether oil will head lower from here or give us at least a stronger bounce. As shown on its chart below, I'm looking for either a rally or a choppy bounce/consolidation before heading lower again. Above 43.50 would point to a higher bounce/rally but until that happens it remains possible we'll see a choppy consolidation/decline into a tradeable low around February.

Oil continuous contract, CL, Daily chart

Tomorrow's economic reports include the unemployment claims and Chicago PMI. With the steady drumbeat of slowing economic numbers we'll see if the Chicago PMI disappoints or comes in a little stronger than November, which is what the market is expecting.

Economic reports


Today's selling might not have been anything more than a little profit taking and for the last day of the week/month/year we could see some buying, maybe even strong buying, in a low-volume environment if there's going to be an effort to prop the market up as high as possible for and end-of-year finish. That can only be speculated here, especially since the weakness in the last two trading days is what we saw last year. That weakness turned into strong selling the first three trading days of January. This and the selling that occurred in January 2014 could have many fund managers looking to get out of the way earlier rather than later.

It's not hard for me to see some additional upside potential for the market, even if it's just for a small choppy move higher into next week. But the bearish interpretation of the price pattern is especially bearish, calling for multiple degrees of 3rd waves to the downside. This bearish pattern calls for a sharp and strong decline in the coming weeks and like January 2014 and January 2015 we could see SPX shed more than 100 points in a hurry into January 2016. You'll want to play the short side if that happens. Follow the key levels, up and down, on the charts and play the direction of the break. In the meantime be careful about the potential for more whipsaws and reversals of reversals.

I'd like to wish everyone a very Happy New Year and I hope 2016 will be better than 2015. As traders we like to see big moves and a trending market is a joy to trade. That's not what we had in 2015 as the market simply traded sideways in a choppy consolidation. It's a very difficult time to trade and I know many traders who were chopped to pieces. It's small comfort to know you're not alone if you were one of them but know this past year has been one of the more difficult to trade, especially if you're a trend follower. If we've entered the next (and last) bear market leg down it's also not going to be easy to trade but you will have an opportunity to make significant money on the short side if played correctly. And hopefully that's what we at OIN can help you do. If you're still sitting on the fence about re-upping, be sure to sign back up with us and let us help with some trading ideas and more learning. The subscription is a very small price to pay for the kind of learning that should help you tremendously. And again, thank you all for your subscription that enables us to do what we love to do (teach a man to fish...).



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Good luck and I'll be back with you next Wednesday. I'll also be taking over from Leigh Stevens for the weekend Index Wrap, starting this coming weekend. I hope to "see" some of you there.

Keene H. Little, CMT

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

New Plays

Tomorrow Could Be A Nail Biter For The Bulls

by James Brown

Click here to email James Brown

Editor's Note:

Tomorrow could be a nail biting session for those hoping to see the market post a gain in 2015. The S&P 500 closed at 2,063.36 today. That is only about four points above breakeven for the year. At the moment the S&P 500 is up less than +0.2% for 2015. The plunge this afternoon doesn't bode well for tomorrow morning.

Normally the seasonal Santa Claus rally from December 24th through the first couple of trading days of January delivers a +1.4% gain in the S&P 500. Our Santa rally may have come early. The S&P 500 rallied +3.6% from its December 18th low of 2,005 into yesterday's close at 2,078.

Technically today's session has generated an "inside day" for the S&P 500. All of today's trading too place inside yesterday's trading range. That normally suggest investor indecision.

Tomorrow is the last trading day of the year and volume will likely be very low. The month of December has seen some volatile moves in the market and the next few days could follow suit.

No new trades tonight.

There will be no newsletter tomorrow night (New Year's Eve). We will be back this weekend with our normal schedule.

Keep your eyes on the 2,059 mark. The S&P 500 needs to close above this level to eke out a "gain" for the year.

Have a safe and happy New Year!

In Play Updates and Reviews

Whoops! Santa Rally Goes M.I.A. Again

by James Brown

Click here to email James Brown

Editor's Note:
The seasonal Santa Claus rally was overpowered by another drop in crude oil prices. Weakness in the commodity sparked a decline this morning and stocks accelerated lower this afternoon.

We still saw KR and PFPT hit new relative highs this morning and hit our suggested bullish entry triggers before reversing lower.

Current Portfolio:

BULLISH Play Updates

Cynosure, Inc. - CYNO - close: 44.44 change: +0.69

Stop Loss: 42.45
Target(s): To Be Determined
Current Gain/Loss: +2.0%
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

12/30/15: CYNO continued to show relative strength today and added +1.57%. This is another new all-time high. Tonight we are raising the stop loss to $42.45.

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

12/30/15 new stop @ 42.45
12/23/15 triggered @ $43.55

iShares Russell 2000 ETF - IWM - close: 114.04 change: -1.16

Stop Loss: 112.85
Target(s): To Be Determined
Current Gain/Loss: +1.2%
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

12/30/15: The IWM reversed at its descending 100-dma and lost -1.0% on the session. Shares closed on their lows for the day and that does not bode well for tomorrow morning.

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: 42.31 change: -0.33

Stop Loss: 40.45
Target(s): To Be Determined
Current Gain/Loss: -1.0%
Entry on December 30 at $42.75
Listed on December 26, 2015
Time Frame: Exit PRIOR to earnings in early March
Average Daily Volume = 726 thousand
New Positions: see below

12/30/15: We were expecting KR to breakout to new highs today. This morning shares did hit new highs. Unfortunately the rally very quickly peaked at $42.75, which just happens to be our suggested entry point to launch bullish positions.

Our trade is open but I am not suggesting new positions at current levels. Wait for KR to bounce before considering new positions.

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.

- Suggested Positions -

Long KR stock @ $42.75

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

Long APR $45 CALL (KR160415C45) entry $1.15

12/30/15 triggered @ $42.75
Option Format: symbol-year-month-day-call-strike

Microsoft Inc. - MSFT - close: 56.31 change: -0.24

Stop Loss: 53.85
Target(s): To Be Determined
Current Gain/Loss: +3.1%
Entry on November 04 at $54.60
Listed on November 03, 2015
Time Frame: 6 to 8 weeks.
Average Daily Volume = 35.4 million
New Positions: see below

12/30/15: MSFT shares held up relatively well. The stock gave back less than half of yesterday's rally. The NASDAQ composite fell -0.8% today while MSFT only lost -0.4%.

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: 61.63 change: -0.26

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

12/30/15: NHI tried to rally again this morning but the stock ran out of steam beneath Monday's high.

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.

Proofpoint, Inc. - PFPT - close: 66.12 change: -1.62

Stop Loss: 64.35
Target(s): To Be Determined
Current Gain/Loss: -3.0%
Entry on December 30 at $68.15
Listed on December 29, 2015
Time Frame: Exit PRIOR to PFPT's earnings report in late January
Average Daily Volume = 638 thousand
New Positions: see below

12/30/15: Caution - our new trade on PFPT is not off to a good start. We added PFPT last night with a suggested entry point at $68.15. The stock hit $68.16 this morning and quickly reversed. Not only that the stock completely erased yesterday's rally with a -2.39% plunge today. This looks like a potential bearish reversal but it might just be unusual movement thanks to very low end-of-year volume.

No new positions at this time.

Trade Description: December 29, 2015:
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.

- Suggested Positions -

Long PFPT stock @ $68.15

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

Long FEB $70 CALL (PFPT160219C70) entry $4.30

12/30/15 triggered @ $68.15
Option Format: symbol-year-month-day-call-strike

SolarEdge Technologies - SEDG - close: 28.63 change: +1.10

Stop Loss: 26.90
Target(s): To Be Determined
Current Gain/Loss: +33.5%
Entry on December 15 at $21.45
Listed on December 14, 2015
Time Frame: 6 to 8 weeks
Average Daily Volume = 790 thousand
New Positions: see below

12/30/15: SEDG has been consolidating sideways for the last six days. Today the stock broke out higher and tagged new multi-month highs. SEDG was up +7% at its best levels of the session but gains faded by the close and shares settled with a +3.99% gain.

Tonight we are moving our stop loss up to $26.90. 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

12/30/15 new stop @ 26.90
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: 62.20 change: -0.16

Stop Loss: 60.85
Target(s): To Be Determined
Current Gain/Loss: +0.2%
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

12/30/15: Good news! The action in STRA today could have been worse. Shares dipped to $61.41 but managed to pare its losses. The stock was actually in positive territory midday. STRA ended the session with a -0.25% decline versus the -0.8% loss for the NASDAQ.

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: 28.48 change: +0.05

Stop Loss: 29.35
Target(s): To Be Determined
Current Gain/Loss: +5.8%
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

12/30/15: GME continues to churn sideways with another session drifting in the $28-29 zone. Today saw the stock's attempt at a rally fail at its simple 10-dma (near resistance at $29.00).

Tonight we are moving our stop loss down to $29.35. 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

12/30/15 new stop @ 29.35
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: 45.56 change: -0.46

Stop Loss: 47.35
Target(s): To Be Determined
Current Gain/Loss: +0.4%
Entry on December 11 at $45.75
Listed on December 09, 2015
Time Frame: Exit prior to earnings in late January
Average Daily Volume = 3.15 million
New Positions: see below

12/30/15: HOG continued to slip lower. Shares lost -0.99% on the session and look poised to drop toward short-term support at $45.00 soon. Wait for a breakdown below $45.00 before considering new positions.

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

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

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

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

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

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

- Suggested Positions -

Short HOG stock @ $45.75

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

Long FEB $45 PUT (HOG160219P45) entry $2.59

12/16/15 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: +0.55

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

12/30/15: The stock market's drop this morning and its acceleration lower this afternoon fueled a +2.88% bounce in the VXX.

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