Option Investor

Daily Newsletter, Monday, 1/4/2016

Table of Contents

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

Market Wrap

Global Woe Sinks Stocks

by Thomas Hughes

Click here to email Thomas Hughes
The market began the year in retreat as mounting global woe weighs on stocks.


The global markets began the new rear in retreat as mounting woes weigh on sentiment.

The bad news began in China where a number of events combined to force indices down by more than -7%, triggering circuit breakers and closing the market. The PBC raised the midpoint for the yuan before the market opened, then, after the open, weak PMI showed another month of contraction in China's industrial sector.

European markets were not cheered by the sell off in Asia and followed suit. Losses here were not as large but aided by the mounting tensions between Iran and Saudi Arabia. The Saudis have responded to Iran's storming of it's embassy by cutting off all diplomatic ties.

Market Statistics

Futures trading indicated a negative open right from the start. The S&P and Dow Jones Industrial Average were looking at a loss of -1% and that was achieved within minutes of the open; there were no economic or earnings releases before the opening bell. After the opening bell the market sold off and sold off hard, hitting the day's bottom near 11AM and -2.5% below last years close. A small bounce regained a fraction of the days losses and led to an afternoon of sideways trading and another bounce that carried the market into the close of today's session.

Economic Calendar

The Economy

Two pieces of the economic puzzle were released today, both after the opening bell and both weaker than expected. Construction spending fell by -0.4% versus the expected +0.8%. However, this month's release came with a footnote detailing a revision to the past 10 years of data. The revisions are expected to raise 2014 GDP by 0.2-0.3% with a similar impact for 2015. Within the data the housing sector saw an increase of 0.2%.

Manufacturing ISM fell unexpectedly to 48.2, down -0.4 from last month. Analysts had been expecting the reading to rise slightly to 49. Within the report New Orders, Employment, Shipments and Production are all down and with Inventories in contraction.

This is a big week for data. Tomorrow auto/truck sales data, later in the week the monthly labor data. Wednesday is ADP, Thursday Challenger layoffs and Friday NFP/Unemployment/Earnings. Also this week we will see Factory Orders, both manufacturing and services ISM, consumer credit and auto/truck sales.

Moody's Survey Of Business Confidence fell back to its recent lows. This week the index fell by -1.5% to 32.4 and near an 18 month low. While still high compared to past recoveries the index shows a noticeable downturn in sentiment since the summer that Mr. Zandi attributes to weak global growth, financial market volatility and possibly the recent rise in world wide terror activity. He also mentions this week's data may be skewed due to a low, holiday induced, response rate.

According to FactSet the blended rate for S&P 500 earnings growth in the 4th quarter of 2015 is now -4.7%. This is up -.2% from last week and may, maybe, possibly, signal the bottom in expectations for the quarter. If trend holds true we can expect to see final 4th quarter growth come in about 4% above this level.

We have seen 17 reports so far this season; 13 beat earnings expectations, 6 beat revenue expectations. Energy remains the weakest sector with expected growth of -66.3%; down from last week. Ex-energy, 4th quarter growth should be in the range of 1-5%.

Full year 2016 earnings growth projections rose by a tenth to 6%; ex-energy is 7.6%. The energy sector is now expected to to see a decline in growth of -8.4%. The season gets off to its unofficial start next Monday when Alcoa reports after the bell. The company is expected to report in-line with the previous quarter.

The Oil Index

Oil prices had a wild day. The early trade was driven on knee-jerk reaction to the Saudi/Iran situation and then later on supply glut fear. In early trading WTI was up as much as 1.5%, later in the day rumors of supply glut in Cushing sent prices down by -1.25%. Fundamentals remain in place for low oil prices, the risk now is that global tensions will lift prices. Today's action may be telling, fundamentals overcame fear to send prices lower.

The Oil Index had a mixed day as well. The index opened lower, despite oils early rise, moved higher and into positive territory, only to be repelled by resistance and eventually fall to test support at 1,050. Today's candle is relatively small but has returned the index to support targets. The indicators are rolling into a bearish signal, in line with recent trends, that could lead to additional testing of support or new lows. If 1,050 is broken the next target is in the 1,000 to 1,025 range.

The Gold Index

Gold prices got a boost from a falling dollar and perhaps some safety seekers. The spot price jumped as much as 1.5% to trade near $1,080 before falling back to settle with a gain near 1.25%. Today's saw prices rise from support levels near $1,060 to resistance levels near $1,080 and contained by both. It looks like near term news is moving price within a range while we wait on data and the FOMC. This week could see FOMC outlook change, but it all depends on the data. For now, fundamentals support stronger dollar and weaker gold.

The gold miners tried to move higher but the move was without conviction. The Gold Miners ETF GDX gained about 2.5% but the move does little to change over all direction. The indicators are pointing higher, but very weakly and consistent with the recent trading range, so this move could continue with upside target near $14.75. However, this ETF, like gold itself, appears to be range bound while the market waits on data and the FOMC. A break outside of the range is the signal; a move higher could take it up to $16, a move lower down to $12.50 or below. The next FOMC meeting is January 26/27, both gold and GDX could remain range bound until then.

In The News, Story Stocks and Earnings

The dollar saw some weakness in the early part of the day as safety seekers flocked to the yen and gold. The Dollar Index fell more than -1% to test support near $98 but this move did not hold. Dollar bulls stepped in and drove the index back to break even and higher, confirming the $98 support level. The indicators are beginning to look pretty good for a bullish movement. Both MACD and stochastic are confirming support and a move higher with upside target near the current highs.

Tesla reported that 4th quarter sales were at the low end of their previously guided range. Sales came in at 17,400 units, up sharply from last years 11,603, but barely met expectations. The news renewed fears in the company and sent the stock down by more than -7%.

President Obama held a news conference today talking about gun control. He says he is looking over his options as head of the Executive Branch and will be announcing some initiatives over the next few days. The news helped spur buying among the gun manufacturers, a few of today's biggest winners. Smith&Wesson gained close to 6% in today's session and is fast approaching the recent all time high. The indicators are consistent with support, just under $22.50, and a move up to the highs near $24.

The Indices

The indices fell today, and fell and fell, but volume was light and by end of day rose up from support levels. Today's action was led by the Dow Jones Transportation Average, and the NASDAQ Composite, which both lost -2.08%. The transports fell to set a new low and hit my support target near 7,250. The indicators are rolling into what could be a bearish signals but are also highly divergent from the new low. This could indicate a bottom or potential trading range with a chance 7,250 will be tested again.

The NASDAQ Composite also fell -2.08%. The index opened with a loss near -2%, traded in a wide range, and then closed with a loss near -2% creating what could become a very significant doji. It looks like price action is confirming support near 4,900 but is unsure about future direction. The indicators are pointing lower, suggesting today's low and/or support levels could be tested again. The indicators are also divergent from the low set today, indicating support and a possible point of reversal. If the index moves lower next target is 4,800 with upside resistance near today's high, around 5,000 and just under the long term trend line.

The next biggest decline posted in today' session was by the Dow Jones Industrial Average with a loss of -1.58%. The index fell to set a new 2.5 month low but also appears to be confirming support at the 17,000 level. Today's candle is long and black but has a long lower shadow supported by divergent indicators. However, while divergent, the indicators are also pointing lower so further testing of support, possibly as low as the long term trend line near 16,750, is very possible.

The S&P 500 made the smallest declie in today's session, only -1.53% by end of day. Today's session created a new 2.5 month low, barely, and is accompanied by bearish indicators. The indicators are pointing to further testing of support but also very weak and consistent with support/range bound trading. Support appears to be near 2,000 with a move as low as 1,985 possible. The long term trend remains up so this move is looking like a potential entry for bullish positions.

Today's move was surprising and a little alarming but overall not to damaging to the markets, yet. The move was driven by knee-jerk reaction to near term news that will likely be forgotten in a few weeks. The China data at least was expected, not great, but expected.

Today's move was also likely due to a lack of volume as market participants wait for this weeks data and the start of earnings season. This week may see some more volatility, and perhaps low volume, up to and until the NFP report on Friday.

For now, except for manufacturing, economic trends are positive with expectations for growth throughout 2016. Earnings trends are a little less positive, the coming season is expected to show negative growth but that is expected to change with the next, and improve all year. So long as this remains true I remain a bull and looking to buy on the dips.

Until then, remember the trend!

Thomas Hughes

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New Plays

A Bright Spot In A Dreary Market

by Jim Brown

Click here to email Jim Brown


SolarCity Corp. - SCTY - close: 52.79 change: +1.77

Stop Loss: 47.95
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on January -- at $---.--
Listed on January 04, 2016
Time Frame: Exit PRIOR to earnings (late January or early February)
Average Daily Volume = 3.8 million
New Positions: Yes, see below

Company Description

Trade Description:
We recently traded SCTY and caught a good chunk of its December rally. It looks like the stock is poised for round two and about to sprint higher again. Here is an updated play description:

December 2015 saw major headlines with 195 countries signing the Cop21 agreement at a U.N. climate change conference in Paris. Their pledge to fight global warming and cut greenhouse gas emissions could mean major developments for the solar-energy industry.

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

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

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

If the Cop21 agreement wasn't enough there was also big news out of Washington in December. Both Congress and the Senate agreed to a budget deal that included a five-year extension on solar-energy tax credits. This is a BIG deal for the industry and really fueled the rally behind solar stocks.

After a rally from $25 to almost $59 in just a few weeks SCTY finally encountered some profit taking in the last half of December. You'll notice that shares founds support near $48.35, just below its simple 200-dma. Now after basing there for a couple of days the stock displayed relative strength with a big bounce today (+3.4%).

SCTY still has a lot of short interest and further gains could fuel another short-covering rally. I want to remind investors that SCTY is a volatile stock and we should consider this a higher-risk, more aggressive trade. We will try and limit risk with a stop loss at $47.95. Tonight we are listing a trigger to open small bullish positions at $53.15.

NOTE: This could be a short-term play. Normally we like to exit prior to a company's earnings announcement. There is no set date yet but SCTY will likely report earnings in very late January to mid February. We will update our time frame once the company announces its earnings date.

Trigger @ $53.15

- Suggested Positions -

Buy SCTY stock @ $53.15

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

Buy the FEB $55 CALL (SCTY160219C55) current ask $3.70
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

Terrible New Year's Hangover Hits The Market

by James Brown

Click here to email James Brown

Editor's Note:
It was a rough day on Wall Street. Rising tensions between Saudi Arabia and Iran set a defensive tone. Then China delivers more disappointing economic data and their stock market crashes. There was a panic flush lower at the open this morning.

CYNO, MSFT, PFPT, and SEDG have all been stopped out.

We adjusted our entry trigger on CSIQ.

Current Portfolio:

BULLISH Play Updates

Canadian Solar Inc. - CSIQ - close: 27.98 change: -0.98

Stop Loss: 26.95
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

01/04/16: Solar energy stocks were actually a bright spot in the market today. Many of them managed to rebound off their morning lows and close up on the session. The TAN solar energy ETF gained +0.4% today. CSIQ did not participate. Shares underperformed with a -3.3% decline after the company announced they had filed to sell an additional $100 million worth of stock (at-the-market). Investors hate being diluted so I'm surprised CSIQ didn't see deeper declines. $100 million worth of stock at current prices (about $28) would be more than 3.57 million shares. Currently CSIQ has 55.9 million shares outstanding and a float of 42.55 million.

Considering today's news the reaction in CSIQ could have been a lot worse. We think the stock will quickly recover. Tonight we are adjusting our entry trigger from $29.25 down to $28.25 and we'll move the stop loss down to $26.95.

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 @ $28.25 *New entry trigger*

- Suggested Positions -

Buy CSIQ stock @ $28.25

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

Buy the FEB $30 CALL (CSIQ160219C30)

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.

01/04/16 adjust entry strategy - move the entry trigger lower from $29.25 down to $28.25 and adjust the stop loss down to $26.95
Option Format: symbol-year-month-day-call-strike

The Kroger Co. - KR - close: 41.16 change: -0.67

Stop Loss: 40.45
Target(s): To Be Determined
Current Gain/Loss: -3.7%
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

01/04/16: The stock market's plunge this morning produced a gap down in shares of KR. Fortunately traders bought the dip near its mid-December lows and KR bounced at $40.67.

No new positions at this time.

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

BEARISH Play Updates

GameStop Corp. - GME - close: 28.31 change: +0.27

Stop Loss: 29.35
Target(s): To Be Determined
Current Gain/Loss: +6.3%
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

01/04/16: GME plunged to new multi-year lows this morning. The combination of the market's decline and a new downgrade for GME pushed shares to a -3.6% loss. Believe it or not but someone bought the dip and GME bounced back into positive territory. Not only that GME managed to outperform the broader market with a +0.9% gain by the closing bell.

Shares remain underneath short-term technical resistance at their 10-dma. More conservative investors may want to lower their stop loss again.

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

01/04/16 Caution - GME sank to new lows and reversed higher.
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: 45.52 change: +0.13

Stop Loss: 47.35
Target(s): To Be Determined
Current Gain/Loss: +0.5%
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

01/04/16: HOG also delivered an intraday reversal today. Shares gapped down and tagged new multi-year lows (near $44) and then bounced back to close positive on the session. That's not a good sign if you're bearish. Investors may want to lower their stop loss again. The simple 20-dma near $46.00 should be short-term resistance.

No new positions at this time.

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: 21.34 change: +1.24

Stop Loss: None, no stop at this time.
Target(s): $16.65
Current Gain/Loss: + 2.2%
2nd position Gain/Loss: +26.4%
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

01/04/16: Investors were in a panic this morning. Rising geopolitical tensions between Saudi Arabia and Iran set the mood. Then China delivered disappointing economic data and their market fell so fast they had to use circuit breakers to slow the sell-off. There was a big demand for protection and the volatility index (VIX) soared +13.6%. The VXX only rose +6.1%

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


Cynosure, Inc. - CYNO - close: 42.00 change: -2.67

Stop Loss: 42.45
Target(s): To Be Determined
Current Gain/Loss: -2.5%
Entry on December 23 at $43.55
Listed on December 22, 2015
Time Frame: Exit PRIOR to earnings in February
Average Daily Volume = 214 thousand
New Positions: see below

01/04/16: Ouch! It was an ugly day for CYNO. Traders were definitely selling their winners today. Shares reversed lower from all-time highs and our trade went from +2.6% to -2.5% when CYNO hit our stop at $42.45.

*small positions to limit risk* - Suggested Positions -

Long CYNO stock @ $43.55 exit $42.45 (-2.5%)

01/04/16 stopped out @ 42.45
12/30/15 new stop @ 42.45
12/23/15 triggered @ $43.55


Microsoft Inc. - MSFT - close: 54.80 change: -0.68

Stop Loss: 53.85
Target(s): To Be Determined
Current Gain/Loss: -1.4%
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

01/04/16: The NASDAQ was hammered lower today thanks to big declines in the "FANG" stocks. Investors were desperate sell just about anything and that included liquid big cap stocks like MSFT. Shares broke down below short-term support at $54 and its 50-dma (and the bottom of its channel). MSFT hit our stop loss at $53.85. The stock did produced a pretty decent intraday bounce, which suggests there was some bargain hunting this afternoon.

- Suggested Positions -

Long MSFT stock @ $54.60 exit $53.85 (-1.4%)

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

2016 JAN $55 CALL (MSFT160115C55) entry $1.54 exit $0.48 (-68.8%)

01/04/16 stopped out
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: 63.40 change: -1.61

Stop Loss: 64.35
Target(s): To Be Determined
Current Gain/Loss: -6.1%
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

01/04/16: PFPT is another victim of the market's sharp decline this morning. Our stop loss was at $64.35 but PFPT closed our play with a gap down at $63.98. The stock dipped toward its 200-dma and its mid-December lower before trying to bounce.

- Suggested Positions -

Long PFPT stock @ $68.15 exit $63.98 (-6.1%)

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

FEB $70 CALL (PFPT160219C70) entry $4.30 exit $1.05 (-75.6%)

01/04/16 stopped out on gap down at $63.98
12/30/15 triggered @ $68.15
Option Format: symbol-year-month-day-call-strike


SolarEdge Technologies - SEDG - close: 28.00 change: -0.17

Stop Loss: 26.90
Target(s): To Be Determined
Current Gain/Loss: +20.7%
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

01/04/16: SEDG managed to close Monday's session with a 17-cent loss. That sounds relatively minor but does not tell the whole story. There was a selling frenzy at the opening bell. A lot of momentum names were crushed in the panic to get out. SEDG gapped down from $28.17 to $25.88 for a -8% plunge at the open. That immediately closed our play since the stop was at $26.90. Interestingly solar-energy stocks were showing strength intraday with traders buying the dip and driving them higher into the close.

- Suggested Positions -

Long SEDG stock @ $21.45 exit $25.88 (+20.7%)

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

MAR $25 CALL (SEDG160318C25) entry $2.10 exit $3.60 (+71.4%)

01/04/16 stopped out on gap down at $25.88
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