Option Investor

Daily Newsletter, Saturday, 1/2/2016

Table of Contents

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

Market Wrap

New Year, New Trend?

by Jim Brown

Click here to email Jim Brown

The year 2015 went out with a thud with the Dow, S&P and Russell ending with a loss for the year. This has prompted many analysts to predict a 2016 rally with some forecasting Dow 20,000.

Market Statistics

Friday Statistics

There were plenty of reasons for a range bound market in 2015. The Fed kept warning they were going to raise rates all year but waited until December to actually do the deed and remove the uncertainty. The U.S. economy rebounded from a very weak 0.6% GDP in Q1 but the rebound faded to a minimal +1.3% growth forecast for Q4. Manufacturing went into contraction in the middle of 2015 and is just now returning to growth.

Earnings declined -4.7% in Q4 with revenue down -3.2%. Crude prices dipped to $33.98 in early December and a post recession low that killed the energy sector and the equity markets. High yield debt crashed to a five year low also dragging the equity markets lower.

The Chinese economy continued to decline with the government manipulating their currency twice and rocking the world currency markets. Terror events, ISIS, the Syrian civil war, Russia moving in to prop up Assad and begin bombing rebels supported by the U.S. coalition. Russia's plane bombed by ISIS, Paris terror attacks followed by San Bernardino and now almost weekly warnings of new threats.

The average gain for the S&P in the 7th year of a presidential cycle is +10.4%. That clearly did not happen with the Dow struggling to a -2.33% loss for the year. The S&P flirted with gains but lost -0.7% for the year after the market plunge over the last two days. This was the first negative year for the Dow and S&P since 2008. On the bright side, there have not been back-to-back consecutive losses since 1981. However, another long-term trend has ended. This was the first loss in a year ending with a 5 in 141 years.

Santa Claus Rally Ran out of Air

The flat market was not worldwide. The French market gained +8.5%, China +9.4% and Japan +7.3%.

The biggest Dow gainers were Nike (NKE) +31%, McDonalds (MCD) +26% and Home depot (HD) +26%. The biggest gainers on the Nasdaq were Netflix (NFLX) +139%, Amazon (AMZN) +122%, Activision (ATVI) +96%, Nvidia (NVDA) +67% and Verisign (VRSN) +55%.

The Nasdaq Composite was the third strongest index with a +5.73% gain. The Nasdaq 100 ($NDX) was second with +8.43% and the Biotech Index was the strongest at +10.9%. The Nasdaq was not without its losers with Micron (MU) losing -59%, Western Digital (WDC) -45%, Viacom (VIAB) -45%, Storage Technology (STX) -44% and Bed Bath & Beyond (BBBY) -36%.

Mutual funds had their worst year since 1998. Goldman Sachs (GS) said 74% of large cap mutual funds are trailing the S&P-500 after 85% trailed in 2014. Warren Buffet posted his worst performance since the recession. Hedge funds closed at the highest rate since the recession.

The good news from 2015 is that despite all the bad news I listed above the markets actually closed flat on the year. They shook off all the bad news and while the Nasdaq finished positive the -0.7% loss on the S&P was a rounding error caused by the low volume plunge on Thursday. Volume for the last three days of trading averaged about 4.8 billion shares.

The seasonal trend for the last two days of December to be weak was the only trend that really came true. All the others were ignored. That same end of December trend is normally followed by a rebound in the first two days of January. Late next week the real trend for January should emerge. The last two January's have been bearish but the prior three were strongly bullish. Let's hope the pendulum swings back in the bulls favor.

Last year was one all the major analysts got wrong. Only one analyst in the graphic below under estimated the year-end print for the S&P. That was David Kostin at Goldman Sachs. Kostin actually revised his target down from 2,100 after the August flash crash so back in January he was also over shooting the mark. In his revision he warned that earnings were declining, oil was continuing to be a major drag as well as the strong dollar. He recommended "buying U.S. stocks with a high percentage of U.S. sales, strong balance sheets, generous dividends and robust share buyback plans."

After missing estimates so bad in 2015, what are analysts calling for in 2016? The good news is that not a single analyst is calling for a bear market. Numerous analysts are calling for more than a 10% rally in 2016 with most expecting it in the first six months.

The average S&P price target for 2016 is 2,215 (+8.4%) with Tony Dwyer at Canaccord the highest at 2,360 or a 15.5% rally from Thursday's close. Dwyer believes the dollar will no longer be a headwind for equities since the Fed expectation has now given way to reality of a measured pace of 3-4 hikes in 2016. Without the strong dollar earnings will rise along with commodities especially oil and copper. He pointed to the performance of commodities in the rate hike cycles in 1994 and 2004 as history likely to repeat.

Other analysts point to the future hikes from the Fed and the continued stimulus from the ECB and Japan as negatives for the dollar. Under those conditions, the dollar should strengthen against the euro and yen. Dwyer believes those factors are already in the market and the slow pace of the Fed hikes will allow the dollar to finds its level at somewhat lower than it is today.

John Stoltzfus at Oppenheimer agrees with Dwyer that the two biggest pressures on the U.S. market in 2015, oil and the dollar will reverse in 2016 and allow earnings to increase and equities to rise. His estimate is for 2,300 at the end of 2016.

Since WWII, the S&P has closed flat within 3% of the prior year close ten times. In the year that followed the index gained an average of 12.8% and rose 80% of the time. Only in 1947-1948 was one flat year followed by another.

In the fourth year of a presidential election cycle the S&P has gained an average of +6.1% since 1948 and has gained 76% of the time. In addition, the Russell 2000 has gained an average of 10.9% and rose 78% of the time since 1980.

Earnings are expected to decline -4% for Q4 and revenue -3%. If that happens full year 2015 earnings will be negative for the first time in 6 years. Full year 2016 estimates are for growth of 8% with revenue up 4.5%. The Q4 earnings cycle will begin in three weeks and most of the year-end volatility should be over before then.

Oil prices are expected to make a low in the March-April timeframe and then rebound slowly to $50-$55 by year-end. However, the worst is over for major earnings declines in the energy sector. Oil prices have been in the $35-$50 range for last quarter and we are now 18 months into the decline cycle. While energy equities may continue to be volatile, the huge earnings declines should be behind them. The bar has been set very low and most companies are in conserve mode today and not spending any more money than they have to in order to keep the doors open. They are just passing time until oil prices begin to firm. Without the constant decline in energy prices, the equity market should firm. The energy sector was 18% of the S&P and now it is only 11% because of the sector decline. When oil does begin to firm around mid-year the sector could lead the market in the last half.

Biotechs were the star performers in 2015 with the index up +10.9%. There is no reason for that trajectory to change. Dozens of novel new drugs are in the pipeline and new discoveries are being made almost weekly. M&A in the sector will continue to be strong. There will be some disasters when a specific drug fails to meet its end point in a trial but they will be limited compared to the gains in the overall sector.

There will probably be some selling in the sector in January as profits from 2015 are captured and investors rotate into different stocks. I would use any January dip to add to positions in the sector.

There were no economic reports of note on Thursday. However, next week is entirely different. The ISM Manufacturing report on Monday is likely to show another month of contraction so that will be a sentiment item for the market. The ADP Employment on Wednesday is expected to show a decline from +217,000 to +190,000 as holiday workers are terminated.

The Nonfarm Payrolls on Friday are also expected to see a minor decline to 200,000. The number of new jobs needs to remain over 200,000 for the Fed's economic theory to remain viable. Last week we saw a spike in weekly jobless claims from 267,000 to 287,000 and the largest weekly number since February. However, this is more than likely related to seasonal workers being laid off again.

The only splits announced last week were reverse splits to keep the companies from being delisted from the exchange. Those were OptimumBank (OPHC) and Mechel Steel (MTL). These are not tradable.

For the full split calendar click here.

Apple (AAPL) lost more than $29 from its April high at $134.50 for a -21.7% decline. It was a major drag on the Dow of about -224 points and a major weight on the Nasdaq. This is not likely to get better over the next several weeks. I recommended on Tuesday that the spike to $109 was a new shorting opportunity. The decline from the highs erased $57 billion in market cap.

On Thursday, Apple was sued for allegedly slowing down the iPhone 4s with the new IOS 9 operating system. The suit claims the software renders the 4s nearly unusable and forces the users to spend hundreds of dollars upgrading to a newer iPhone. I think Microsoft has been doing this with Windows for years. Every update slows the PC even further eventually forcing you to buy a new PC with a new Windows version. I am surprised nobody sued Apple for this in the past.

Analysts continue to slash sales estimates even though Tim Cook said projecting sales based on supplier shipments was flawed. If Q4 sales come in as analysts expect it will be a huge earnings miss for Apple. If sales come in as Tim Cook has led us to believe, at a new record, there will be a lot of disappointed shorts.

The key here is that Apple is likely to continue lower until earnings on January 17th. Since Apple is a big stock in the Nasdaq and Dow it could hold those indexes back. Apple closed at a four-month low on Thursday.

McDonalds (MCD) was the second best performer in the Dow in 2015. Most of those gains came in the last three months after they rolled out the all day breakfast and changed their menu again. They appear to be on a roll and there are new concepts coming.

They closed the largest McDonalds in the world last week. The 12,000 square foot store had a PlayPlace, bowling lanes, an arcade, animated robots and other attractions. This store was in Orlando Florida and was a tourist attraction for families headed for Disney World. The store was open 24 hours a day, 365 days a year. The store was closed to make room for a new 19,000 square foot store that will include several self-serve kiosks so customers will not have to talk to a real person, along with some new attractions.

In Hong Kong, McDonalds is opening a "food bar" styled restaurant with a "Create Your Taste" platform that allows customers to customize their salads and sandwiches. This is similar to a Subway where the food is prepared by workers behind a glass partition and you tell them what you want as your food moves down the preparation table. There will also be touch screen menus. This new type of store is called McDonalds Next.

McDonalds recently opened the "Corner by McCafe" in Sydney Australia. The restaurant serves healthy offerings, including tofu and vegetables. No Big Macs or fries to be seen. Instead, the menu includes salads along with Moroccan roast chicken breast, chipotle pulled pork, brown rice, pumpkin, lentil and eggplant salads and sandwiches.

The times are changing for McDonalds and as these ideas catch on we could see an entirely new McDonalds emerge in the USA.

Crude oil was a significant market driver in 2015. If oil was up the market was up and falling oil meant a falling market. That should work in our favor in 2016 since oil is very near a bottom. When inventories begin to pile up starting in January we should see crude drift lower. The inventory accumulation cycle ends April-May as refiners switch over to summer blend fuels and move to almost 100% utilization as they build gasoline inventories for the summer driving season.

During the inventory build cycle we could see prices dip briefly under $30. This will create so much pain for the producers they will be forced to shut in some production rather than sell it for such a small amount. The discount to WTI in the Bakken was as much as $8 recently so $30 WTI means they are only selling their oil for $22. The $30 level for WTI is the "off switch" level where production should slow significantly as producers hold production for higher prices in the future.

Most of the drilling being done today was committed in 2014 and early 2015. Very few new projects are being funded. The EIA expects U.S. production to decline -570,000 bpd in 2015 as prices continue to fall.

I said oil would be a positive influence on the 2016 equity market. Unfortunately, we have to get past the next three months before that will become a factor. Once it appears oil prices have bottomed, we should see equities rise in advance of the actual rally in oil prices.

Short covering ahead of year-end gave crude a little boost on Thursday but it was negligible. We could have one more EIA report on Wednesday with a decline in inventories for tax purposes but once into January the barrels will begin to flow. The graphic below from OilSlick shows the oil inventory gains and losses for Dec-Jan 2015. Note the decline in the last two weeks of December to avoid taxes but then the huge surge once we moved into January. The 413.1 million was a multi month high at the time but inventories continued to rise to 490 million barrels by April. Once inventories began to decline in May, the pace was fairly rapid.

The wild card here is the recent lifting of the 40-year ban on crude exports. The first tanker of U.S. crude left a Texas port on Thursday headed to Italy on the Theo T tanker. The crude was sold by ConocoPhillips to Vitol which routed it to Italy. Enterprise Product Partners said last week they would load 600,000 barrels in Houston for export next week. We do not know how this new export factor is going impact the inventory picture in the weeks ahead.

Active rigs declined by only 2 rigs last week but given the holidays I am surprised there was any activity at all. Oil rigs declined -2 to 536 and gas rigs were unchanged at 162.

Once we are in 2016 we could see some capex budgets shift and whether that means another drop in rigs or some going back to work is unclear. Nearly all producers have slashed capex for 2016 and with oil at $35, there is no reason to burn cash drilling holes you are not going to complete until 6-12 months from now.

We could get a market boost next week from what is called the January Effect. This is when stocks that were sold off to lock in tax losses in December are bought by investors at lower prices in January. There is also the normal bounce in the small caps as funds put year-end retirement contributions to work.

Ryan Detrick at Kimble Charting Solutions noted that of the 500 S&P components 301 were down -10% from their highs, 175 were down at least -20% as of December 30th. While the overall market has been weak since August the FANG stocks (Facebook, Amazon, Netflix and Google) were up +35% and together they accounted for 5% of the S&P gains.

Jeffery Saut said the individual investor is in hibernation. The S&P moved at least 1% on a daily basis in either direction 72 times in 2015 and that is the most since 2011 according to Standard and Poor's data. Some 48% of our daily volume is from high frequency trading.

The Stock Trader's Almanac says the January direction predicts the direction of the market for the year with a 75% accuracy rate. We need a positive January to give investors some confidence to come back into the market.


While 2015 finished in the red for the Dow and S&P the indexes were not down much and they are still close to their recent highs. It was not a horrible close for the year.

However, the closing numbers are somewhat deceiving. The S&P may have been down only -0.7% but it is -4.3% or -93 points off the highs. That could easily be recovered in a couple weeks of bullish gains but I would not count on it over the next two weeks. We still need to finish up with the January tax selling where investors held over into the new tax year to take gains.

The S&P chart is showing a series of lower highs and lower lows and without a move over 2,100 it will remain a bearish trend. Actually, we need a move over 2,138 to a new high to convince the hard-core bears.

On the weekly S&P chart the Fibonacci lines from the 2009 low show a 1.618 retracement at 2,137 on the S&P. While everyone was watching to see what happened when the S&P crossed 2,000 the hard-core technical chartists were watching 2,137. The S&P moved right to it multiple times but never crossed it. Some believe this is the market top and we need to have a prolonged period of selling before that top can be broken.

The S&P is up more than 200% since those 2009 lows at 666. There have been three mini corrections along the way but you have to admit the vertical ascent is remarkable. With PE multiples approaching 20 there needs to be a period of price consolidation before the market can move higher according to the chartists.

However, remember the numbers I quoted earlier about the 500 S&P components, 301 were down -10% from their highs, 175 were down at least -20% as of December 30th. We have had a rolling correction since August that was hidden by the performance of the top ten Nasdaq big cap stocks, which lifted the indexes despite the decline in the broader market.

The daily chart has been bearish since the lower high failure on December 1st at 2,104. We have been chopping around between 2000-2080 for most of December. Friday's sharp decline was troubling even though the last couple days of December have a seasonal tendency to be weak. I went back five years and the weak days were only a handful of points compared to Thursday's -19 point decline.

The easy forecast would be a simple look at the chart ignoring all the macro factors. I call this the 5th grader view. If you are ever confused about market direction, ask a 5th grader if the chart is going up or down. They have no preconceived ideas about market direction, earnings, Fed meetings, GDP, the Chinese economy, etc. They will just look at the chart and "Gee Dad, I think it is going ____" without even knowing what symbol you are charting.

As adult investors, we sometimes get hung up with our directional bias without realizing it. That can be expensive because we trade our bias rather than the charts. We trade the hope rather than the facts.

I laid out the analyst thesis earlier in this commentary but that is long-term rather than the next several weeks. We need to put our 5th grader hats on and focus on the charts rather than the forecast.

The 5th grader view is that the S&P chart is bearish. That could change at the open on Monday and the first two days of January typically see big moves. That means we need to let the smoke clear before we start betting on direction for the year.

The S&P closed on light support at 2,043.94 with stronger support down at the 2000-2005 level. Resistance will be the recent intraday high at 2,080 and then 2,105.

The Dow chart is slightly more bearish than the S&P because of the longer series of lower highs dating back to May. The Dow saw a boost over the last two weeks because of the buying in the Dogs of the Dow. That cycle should begin to fade once we are into January. The Dow stocks are international stocks and the earnings worries will begin to weigh on them as we approach the start of the Q4 cycle in three weeks. The dollar was still a factor in Q4 and sales will have been impacted.

GE remains the sleeper stock of the bunch with a positive chart and a pending breakout over $31 to a new high. GE management is making all the right moves and they expect to return $32 billion to shareholders in dividends and buybacks from the sale of assets from GE Capital. This has maintained support under GE shares when the rest of the Dow was falling apart.

Chevron and Exxon could be a continued drag once oil prices begin to sink again. Nike could provide some lift once the post split depression wears off. Apple will of course be a drag until earnings.

The Nasdaq has been supported by the FANG stocks and biotechs. The +10% gain in the biotech index was a major support for the Nasdaq. The index is not that far away from its highs and could see a rebound from year-end retirement contributions.

The 4888-4900 support is still the material level to watch. The close on Thursday at 5,007 was one point below support at 5,008. That is close enough for me but any decline at the open immediately targets that lower level.

The Nasdaq 100 remains the stronger of the tech indexes and is only about 125 points below its closing high. A week of decent daily gains could push it right back to that level pretty quickly.

The Russell chart is probably the most bearish. The big decline in December was not followed by a decent rebound like the one we saw in the other indexes. The Russell began to collapse in late June and only recovered half its losses from the September low. The Russell closed the year with a loss of -5.7%.

The small caps appear to be out of favor because the late December rally never appeared and it is hard to see a normal January rally at this point.

The Russell 2000 is in correction territory after a high close in June at 1,296 and a -161 point (-12.4%) decline from that level. We are not going to make new highs on the big cap indexes with the Russell 2000 in correction.

It will also be hard for the Dow Industrials to surge higher with the Dow Transports deep into correction territory with a 17.8% loss for the year. Slowing truck and rail shipments plus profit worries at the airlines are weighing on the index. It is also hard to see how the U.S. economy is going to avoid recession with the transport sector tanking.

The NYSE Composite Index ($NYA) is also telegraphing a bearish outlook. The index is small cap heavy with plenty of energy stocks to weigh it down. A break below Thursday's close at 10,143 would be another lower high and we could easily see a retest of 9,600.

If we put our 5th grader hats on the charts are telling us the market is weak. While January is typically a strong month, there are never any guarantees. We need to trade what we see rather than what we want to see. If you do not have a desperate need to make a trade this week I would recommend waiting to see what the market gives us before committing to a direction. The first two days can be volatile and the rest of the week tends to be a settling process into new positions.

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

With the Nonfarm Payrolls on Friday and the Fed in hike mode, those numbers will be even more important. Be patient. There is always time to trade as long as you have capital to invest. If you miss an entry on the stock you want, be patient. There are 4,500 stocks. Another opportunity will appear.



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Random Thoughts

The web is full of all kinds of end of year articles and I listed the best ones I found in the comments below. Some I did not post were really out there and there were some with no basis in fact whatsoever. Enjoy!

Here is the 2015 market in ten points from Mohamed El-Erian. He said saying stocks had "their worst year since 2008" only tells a tiny part of the story. Ten Market Thoughts

MarketWatch posted an article by Matthew Lynn on five black swan events that could rock the market in 2016. Five Black Swans

Business Insider posted an article with 15 events they believe will happen in 2016. Things like "Iran will cheat on the nuclear deal" to "China will become unstable over the South China sea." 15 Probable Events for 2016

According to the Stock Trader's Almanac the 8th year of a presidential term has been down 5 of the last 6 times it has happened with an average loss of -13.9%. Wow! Let's hope that historical trend is broken severely.

"Never make predictions, especially about the future." Yogi Berra.

Investor sentiment surged into the neutral camp at 51.3% as of the close on Wednesday. Bearish sentiment declined -7.9% and bullish sentiment fell -1.3%. Neutral sentiment spiked 9.2% to 51.3%. Clearly, the majority of investors are unsure about what January will bring.


Enter passively and exit aggressively!

Jim Brown

Send Jim an email


"Trying to catch falling knives always results in lost fingers. Better to let the knife hit the floor, bounce around a little and when it stops moving go pick it up."

Mark Yusko. Morgan Creek Capital Mgmt.


New Plays

Major Policy Moves Could Fuel Big Gains For Solar Stocks

by Jim Brown

Click here to email Jim 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:

Bearish ideas: WSM, ADI, JWN, PCAR, FIS, CFR, MCY, CF, LM, IP, TYC, GPS,

Bullish ideas: JAH, SERV, MGM, MXIM, UDR


Canadian Solar Inc. - CSIQ - close: 28.96 change: +0.32

Stop Loss: 27.85
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on January -- at $---.--
Listed on January 02, 2016
Time Frame: 6 to 8 weeks
Option traders: exit PRIOR to February expiration
Average Daily Volume = 2.2 million
New Positions: Yes, see below

Company Description

Trade Description:
Solar stocks are back in vogue thanks to some major policies changes in the U.S. and the rest of the world. A couple of weeks ago 195 countries agreed to reduce greenhouse gas emissions when they signed the Cop21 agreement in Paris, France. A recent report by analysts at MIT suggested that the Cop21 deal could see solar energy demand triple in the next 15 years.

CSIQ is in the technology sector. They are considered part of the specialty semiconductor industry. According to the company, "Founded in 2001 in Canada, Canadian Solar is one of the world's largest and foremost solar power companies. As a leading manufacturer of solar photovoltaic modules and a provider of solar energy solutions, Canadian Solar has a geographically diversified pipeline of utility-scale power projects. In the past 14 years, Canadian Solar has successfully deployed over 12 GW of premium quality modules in over 70 countries around the world. Furthermore, Canadian Solar is one of the most bankable companies in the solar industry, having been publically listed on NASDAQ since 2006."

In addition to the Cop21 deal in Paris there was also significant news out of Washington in December. Both Congress and the Senate passed a budget deal that included a five-year extension for the solar tax credits. This really ignited the rally in solar stocks.

Fast forward to last week and Bloomberg reports that China is poised to boost their solar energy. Here's an excerpt from the Bloomberg article, "China, the world's biggest clean energy investor, plans to increase wind and solar power capacity by more than 21 percent next year as it works to reduce greenhouse gas emissions by cutting its reliance on coal. The nation is targeting at least 20 gigawatts of new wind power installations and 15 gigawatts of additional photovoltaic capacity next year, the National Energy Administration said in a statement on Tuesday."

It would appear that the major solar energy companies should have at tailwind for their business as they head into 2016. CSIQ, with its widespread international business, should do well. The stock has developed a bullish trend of higher lows. The last few weeks have seen CSIQ break through multiple layers of resistance. The point & figure chart is bullish and forecasting at $40 target.

The last three days have seen traders buying the dips at CSIQ's rising 10-dma. Shares displayed relative strength on Thursday with a +1.1% gain. Tonight we are suggesting a trigger to launch bullish positions at $29.25 with a relatively tight stop loss at $27.85. More conservative investors may want to wait for CSIQ to close above potential round-number resistance at $30.00 as an alternative entry point instead.

Trigger @ $29.25

- Suggested Positions -

Buy CSIQ stock @ $29.25

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

Buy the FEB $30 CALL (CSIQ160219C30) current ask $1.85
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

Traders Were Selling, Not Celebrating New Year's Eve

by James Brown

Click here to email James Brown

Editor's Note:
The U.S. markets ended 2015 in the red. The last trading day of the year suffered a widespread decline with the major indices losing -1% or more. It was the S&P 500's worst year since 2008.

Thursday's session saw the IWM and STRA hit our stop losses. The NHI trade has been removed.

Current Portfolio:

BULLISH Play Updates

Cynosure, Inc. - CYNO - close: 44.67 change: +0.23

Stop Loss: 42.45
Target(s): To Be Determined
Current Gain/Loss: +2.6%
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

01/02/16: CYNO is still flexing its relative strength muscles. Shares ignored the market's decline on Thursday and added another +0.5% to close at new all-time highs.

No new positions at this time.

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


The Kroger Co. - KR - close: 41.83 change: -0.48

Stop Loss: 40.45
Target(s): To Be Determined
Current Gain/Loss: -2.2%
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

01/02/16: KR spiked down at the open on December 31st. Shares spent the rest of the day drifting sideways near technical support at its simple 20-dma. More conservative investors may want to raise their stop loss. At this time I would wait for a new high (above $42.75) 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: 55.48 change: -0.83

Stop Loss: 53.85
Target(s): To Be Determined
Current Gain/Loss: +1.6%
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

01/02/16: Shares of MSFT hit 15-year highs a couple of (trading) days ago. The stock was a target for profit taking on Thursday before the year ended. MSFT fell -1.47%, worse than the NASDAQ's -1.1% decline. For the year MSFT gained +19.4% versus the NASDAQ's +5.7%.

If this dip continues we could see MSFT decline toward its simple 50-dma near $54.25.

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


Proofpoint, Inc. - PFPT - close: 65.01 change: -1.11

Stop Loss: 64.35
Target(s): To Be Determined
Current Gain/Loss: -4.6%
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

01/02/16: Ouch! It's been a rough two days for PFPT. The recent breakout higher has reversed. Shares are down $3.00 (intraday) in the last two sessions. If this dip continues we will likely see PFPT test what should be support near $64 and its 100-dma. That is not good news. Currently our stop loss is at $64.35.

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: 28.17 change: -0.46

Stop Loss: 26.90
Target(s): To Be Determined
Current Gain/Loss: +31.3%
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

01/02/16: SEDG did see some profit taking on Thursday with a -1.6% decline. Fortunately shares found support near $28.00, which was prior resistance and now new support.

Investors may want to raise their stop loss again. 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


BEARISH Play Updates

GameStop Corp. - GME - close: 28.04 change: -0.45

Stop Loss: 29.35
Target(s): To Be Determined
Current Gain/Loss: +7.2%
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

01/02/16: GME underperformed the broader market with a -1.5% decline on Thursday. Shares still managed to close above support at $28.00. The stock is poised to breakdown from its $28-29 trading range from the last two weeks.

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: 45.39 change: -0.17

Stop Loss: 47.35
Target(s): To Be Determined
Current Gain/Loss: +0.8%
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

01/02/16: HOG posted another decline but shares actually held up reasonably well. The stock lost -0.3% on Thursday while the S&P 500 lost -0.94%. On the plus side (if you're bearish) was HOG's intraday failure at technical resistance from the simple 20-dma. 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: 20.10 change: +0.48

Stop Loss: None, no stop at this time.
Target(s): $16.65
Current Gain/Loss: + 7.9%
2nd position Gain/Loss: +30.7%
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

01/02/16: The stock market's widespread decline on Thursday fueled a bounce in the volatility measures. The VIX gained +5.3%. The VXX only rose +2.4%.

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



iShares Russell 2000 ETF - IWM - close: 112.62 change: -1.42

Stop Loss: 112.85
Target(s): To Be Determined
Current Gain/Loss: +0.2%
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

01/02/16: Most of the market accelerated lower on Thursday afternoon to end the year on a down note. The IWM was no exception. The small cap ETF lost -1.24% and hit our stop loss at $112.85 in the last couple of minutes of trading.

- Suggested Positions -

Long the IWM @ $112.65 exit $112.85 (+0.2%)

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

JAN $115 CALL (IWM160115C115) entry $1.18 exit $0.70 (-40.7%)

12/31/15 stopped out
12/26/15 new stop @ 112.85
12/15/15 triggered @ 112.65
Option Format: symbol-year-month-day-call-strike


National Health Investors - NHI - close: 60.87 change: -0.76

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: see below

01/02/16: NHI is not cooperating. Shares underperformed on Thursday with a -1.23% decline. The stock broke down under its new trend line of higher lows and looks headed for $60.

Our trade has not opened yet. The suggested entry point was $63.05 (above the 200-dma). Tonight we are removing NHI as a candidate.

Trade did not open.

01/02/16: removed from the newsletter, suggested entry was $63.05


Strayer Education Inc. - STRA - close: 60.12 change: -2.08

Stop Loss: 60.85
Target(s): To Be Determined
Current Gain/Loss: -1.9%
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

01/02/16: The last day of the year was somewhat volatile for shares of STRA. The stock rallied off the morning gap down. For a little while STRA was positive on the session. Then when the broader market rolled over and accelerated lower in the last two hours we saw shares of STRA just collapse. STRA fell -3.3% toward round-number support at $60.00. Our stop was hit at $60.85. Closing on the lows of the session doesn't bode well for Monday.

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

Long STRA stock @ $62.05 exit $60.85 (-1.9%)

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

APR $65 CALL (STRA160415C65) entry $4.20 exit $3.50 (-16.7%)

12/31/15 stopped out @ 60.85
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