Option Investor

Daily Newsletter, Thursday, 1/7/2016

Table of Contents

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

Market Wrap

Global Sell Off Deepens

by Thomas Hughes

Click here to email Thomas Hughes
China woe and plunging oil prices carry the markets to new lows.


China woe and plunging oil prices drove the global markets to new lows today. China's Shanghai index was the leader once again, hitting the -7% circuit breaker, which halted trading for the day. Volatility in the region has risen once again, due mainly to meddling by the government, and is expected to continue at least into tomorrow. New developments include a suspension of the circuit breaker, resumption of government backed equities buying and an extension of selling rules that had been set to expire tomorrow. European indices were led by the DAX which lost close to -4.5% on an intraday basis. The region was able to recover some, but not all, of the days losses with the DAX closing down -2.29%.

Market Statistics

Futures trading was indicating a loss of -2% or more for most of the morning with little effect from positive data and earnings released before the opening bell. The China situation, as well as rapidly declining oil prices, was firmly in focus. The markets retreat in quick fashion when the opening bell sounded, with the S&P 500 hitting an early low of -1.79%. This low held, the market was able to bounce, aided by the announced suspension of Chinese circuit breakers, and traded up off the intraday low until late in the day. By 1:30 the indices were back down testing their lows and setting new ones. The day's final low was set around 3:30 and led to a late day rally. This rally was short lived and left in the indices near the lows of the day.

Economic Calendar

The Economy

Today's labor data does not support a faltering economy. Along with the jobless claims data we also saw the latest Challenger Gray & Christmas report on planned lay-off's. This month's figures hit new lows on so many levels, but is tempered by statements suggesting that employers are shying back from job cuts during the holiday season. The ADP data yesterday, however, suggests that employers might not be laying off because they need those employees. Whatever the reason, in December 2015, planned lay-offs were 23,622. This is a 15 year low, the lowest December on record and makes the 4th quarter of 2015 the lowest level a 13 year low.

The December figure is down -24% from last month and -27.6% from December last year. On a full year basis 2015 did not hit a record high, as expected, but was up 24% over last year. Mitigating this rise is the increase in oil related job cuts, +660% over 2014, and government, +311%. There were some notably large cuts in the computer sector as well, HPQ and MSFT, but on a whole that sector is basically flat on a year over year basis.

Challenger's 2016 outlook calls for a slower pace of lay-off's, rising wages and increased hiring.

Initial claims for unemployment benefits came in at 277,000 this week, down -10,000 from last week's not revised figure. The four week moving average also fell, -1,250, and hit 275,750. On a not adjusted basis claims rose 16.9% versus an expected 21.5% projected by the seasonal factors. YOY not adjusted claims is down -7%. The states with the biggest increases were NJ (6935), MI (6348), and KY (5497). The states with the largest decrease in claims were CA (-9900), TX (-5083) and FL (-2474).

Initial claims have trended up in the nearer term but remain low and near the 40 year low set last year. We are entering a period of seasonal volatility in claims. They may rise somewhat over the next few months with larger fluctuations centered around MLK Day, Valentines Day and Easter..

Continuing claims rose this week, adding 25,000 to hit 2.230 million. Last week's figures were revised higher by 7,000 bringing this week's total to +32,000 from the previous report. Continuing claims have also risen slightly over the past month to 6 weeks but remain very low, near the 40 year low and consistent with labor market health. Total claims fell by -100,503, consistent with expectations, to hit 2.236 million. This is the lowest level in four weeks but still off the long term lows set last fall. Year over year total claims are down -7%. Looking forward we can expect to see this number rise over the coming months, how high and how long will be more important than the fact that it does. Based on last years data we could see a significant rise as soon as next week which would be data for mid December.

Tomorrow is NFP, unemployment, hourly earnings and hours worked data. Based on the ADP it could be quite strong, possibly as high as 250,000. Unemployment is expected to remain steady, as is hours worked.

The Oil Index

Oil prices fell hard in the early morning hours to hit a 12 year low. WTI fell more than -5% intraday to reach levels below $32.50 before bouncing back to break even later in the day. Supply and demand issues are still not resolved and for appear to be firmly in favor of supply. Today's action shows there are some buyers at these levels, whether or not the can support the market is in question but I wouldn't be surprised to see WTI hit $30.

The XOI fell in today's trading and hit the lower target just above 1000. The index fell more than -2% intraday and created a candle with long upper shadow in the process. Today's action suggests that this level could be support but that is yet to be confirmed. The indicators are both pointing lower in the near term, suggesting a test of support, but divergent from this new low suggesting support and/or reversal. In either event oil prices will lead. A break below this level could take the index down to 950, a bounce could go as high as 1,050 or 1,100.

The Gold Index

Gold prices are getting lift on a flight to safety and has poked its head above $1100. This move breaks a resistance target but does signal reversal. Prices are lifting on China woe mostly, a situation likely to fizzle out over the next week. If you remember, last summer China sent some ripples through the market that were largely forgotten two weeks later. Fundamentals, labor data, supports a strengthening US economy and a stronger dollar so for now this move in gold appears to be near term, and a selling opportunity for the bears.

The gold miners got a lift from gold. The miners ETF GDX rose more than 4.5% and broke through the top of the two month trading range to touch $15. The indicators are pointing higher a move above $15 could come. There some signs of resistance; an upper shadow on the candle, a near term down tick in stochastic %K and divergences in both indicators suggest the ETF is still range bound. $15 is a possible resistance line, next target is near $15.50.

In The News, Story Stocks and Earnings

Earnings season has begun, if quietly. KB Homes were among those reporting today before the bell and the home builder did not meet expectations. Top and bottom line misses, driven by weather related delays in construction, along with a poor outlook for earnings growth helped to drive the stock lower by more than -10% during the session. Although disappointing to investors, company CEO said that traffic was strong and demand remained robust. Of note, labor shortages are being cited as another reason for the shortfall in earnings.

The Walgreen's Boots Alliance reported better than expected earnings on slightly weaker than expected revenue. Earnings of $1.01 beat by a nickel and are up more than 11% from last year. The company also narrowed its guidance to the upper end of the previously stated range. The news helped to lift the stock by nearly 4% intraday but sellers took advantage of the gains and traded the shares down from there. Today's action appears to confirm support at $80.

Constellation Brands reported before the bell and pleased investors to say the least. The company beat on the top and the bottom lines, reported strong demand and raised guidance. Guidance was raised to a range of $5.30-$5.40, ten cents above the high end of the previous range, and drove shares up by more than 5%. The move looks strong but I think, based on the doji, rushing into this might not be a good idea.

The Container Store reported after the bell and did not live up to expectations. Consensus was $0.05, actual was -$0.04 which came on weak revenue and poor store traffic. The really bad news was guidance, which came in -30% below consensus. Shares of the stock fell in after hours trading.

The Indices

The indices are once again approaching correction territory, once again led by the Dow Jones Transportation Average. The transports lost more than -3% in today's action, falling to support targets at 7,000. Today's candle is long and black with very little shadow and declining indicators so a break of 7,000 could easily happen. The indicators are bearish in the near term, consistent with a move lower, but are also divergent from the newly set low. The divergence suggests the move is running out of steam, reaching an extreme of sentiment or approaching support, 7,000 could be it, if not a move down to 6,750 looks likely.

The NASDAQ Composite was the next biggest loser in today's session. The tech heavy index lost just over 3% in a move that appears to be confirming resistance. Today's action gapped lower at the open, moved up into positive territory and then fell to new lows, creating a candle with a long upper shadow and indication of resistance. The indicators are pointing lower, momentum is strong and gaining strength, so this move could continue. Next target is near 4,575.

The Dow Jones Industrial Average made the third largest decline in today's action, about -2.32%. The blue chips created a long black candle with very little lower shadow and broke below the long term trend line and support targets near 16,00. The indicators are bearish and pointing lower, but not overly strong, so it looks like this move could continue with downside targets near 16,000.

The S&P 500 was today's laggard in terms of losses. The broad market lost about -2.25%, created a long black candle and broke through support targets. Today's action is accompanied by bearish indicators, weakly bearish, and could go as low as 1,900.

The indices are nearing correction and could easily enter it tomorrow or next week. There is a lot of market turbulence, primarily centered on China and oil prices, set on the back-drop of what is expected to be a poor earnings season. These events are not inspiring, but may lead to the beginnings of the next rally.

Reasons why I remain bullish overall; Earnings season is likely to turn out better than expected, future outlook for earnings is for growth, economic trends (labor) are positive and growth is expected to expand in the next year. The noise will soon dissipate and the market will return to focus on these things, sooner or later.

Tomorrow we get the big one, the numero uno economic release that moves the market, the non farm pay rolls report. This number is likely to be strong, an even which should inspire a rally because is it shows economic strength, but this might be clouded by FOMC outlook in the face of China, sluggish global growth and weak earnings.

I expect China's market will be quite volatile overnight, what they do is really what will drive tomorrow's trade. I remain a long term bull, waiting for my entries, looking to buy on the dips but playing it very very cautious in the near term.

Until then, remember the trend!

Thomas Hughes

New Plays

Selling Crescendo About Over?

by James Brown

Click here to email James Brown


S&P Biotech ETF - XBI - close: 61.82 change: -2.53

Stop Loss: 58.95
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on January -- at $---.--
Listed on January 07, 2016
Time Frame: 3 to 4 weeks
Option traders: exit prior to February option expiration
Average Daily Volume = 4.3 million
New Positions: Yes, see below

Company Description

Trade Description:
The last six months of 2015 were rough on biotech stocks. The XBI fell from $90 to $70 (a -22% drop). The selling pressure has accelerated in 2016. This ETF is already down -12% this year (last four days) and down -13.5% from its late December 29 high.

Normal volume is about 4.3 million shares a day. The current sell-off has seen volume picking up and today volume hit 11.6 million shares. We suspect the XBI is nearing a short-term selling crescendo and will see a sharp bounce back. When the broader market bounces the biotech stocks should outperform to the upside.

Today's intraday high in the XBI was $63.35. We are suggesting a trigger to launch small bullish positions at $63.40. Biotech stocks are volatile so we want to limit our risk by using small positions. Readers should consider this a more aggressive, higher-risk trade.

Nimble traders may want to take a different approach. The $60.00 level should be major support for the XBI. If you're nimble enough you could try and buy a dip (or a bounce) near the $60 level instead but this is an alternative strategy. Officially the newsletter is listing a trigger to launch bullish positions at $63.40.

Trigger @ $63.40 *small positions to limit risk*

- Suggested Positions -

Buy the XBI @ $63.40

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

Buy the FEB $65 CALL (XBI160219C65) current ask $2.65
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

Global Stock Market Sell-off

by James Brown

Click here to email James Brown

Editor's Note:
More bad news out of China fueled a -7% drop in the Shanghai index. This sparked a global market sell-off. The U.S. indices fell -2% to -3% and closed near their lows of the session, which usually does not bode well for tomorrow morning.

SCTY was stopped out. Our new bearish play on AKAM is open.

Current Portfolio:

BULLISH Play Updates

The Kroger Co. - KR - close: 41.07 change: -0.98

Stop Loss: 40.45
Target(s): To Be Determined
Current Gain/Loss: -3.9%
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

01/07/16: The S&P 500 index fell -2.3% today. Shares of KR followed suit with a -2.3% drop of its own. The stock is nearing short-term support in the $40.65 area. If it falls any lower we'll be stopped out at $40.45.

No new positions at the moment.

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

Akamai Technologies - AKAM - close: 48.19 change: -2.29

Stop Loss: 52.75
Target(s): To Be Determined
Current Gain/Loss: +2.3%
Entry on January 07 at $49.34
Listed on January 06, 2016
Time Frame: Exit PRIOR to earnings in early February
Average Daily Volume = 2.1 million
New Positions: Yes, see below

01/07/16: Shares of AKAM continued to sink right on cue with some help from the broader market. The NASDAQ composite fell -3.0%. AKAM underperformed with a -4.5% drop. The plan was to launch bearish positions at $49.75 but our trade opened on the gap down at $49.34. Nimble traders got a better entry point when AKAM bounced back into the $50.00-50.60 area this morning before rolling over and plunging to new 52-week lows.

No new positions at this time.

Trade Description: January 6, 2016:
Right now the market's momentum is lower so we are adding a bearish momentum play. The long-term up trend in shares of AKAM appear broken after disappointing Q4 guidance. Shares underperformed the market last year with a -16% decline for 2015. That is thanks to a -33% plunge from its October peak (just before its Q3 earnings report).

AKAM is in the technology sector. According to the company, "As the global leader in Content Delivery Network (CDN) services, Akamai makes the Internet fast, reliable and secure for its customers. The company's advanced web performance, mobile performance, cloud security and media delivery solutions are revolutionizing how businesses optimize consumer, enterprise and entertainment experiences for any device, anywhere."

Shares were killed on October 28th with a -16.7% plunge following its Q3 earnings report. AKAM had reported earnings the night before. Analysts were expecting a profit of $0.58 a share on revenues of $550 million. The company said earnings grew +0% from a year ago to $0.62 a share. That beat estimates. Revenues were up +10% to $551 million, just a hair above expectations. The issue was AKAM's guidance. They guided Q4 revenues into the $557-577 million zone and Q4 earnings into the $0.60-0.64 range. Wall Street was forecasting Q4 revenues closer to $596 million and earnings near $0.65 a share.

Several analyst firms downgraded AKAM shares following its disappointing Q4 guidance. The stock has continued to underperform since this pivotal announcement with investors selling every rally. AKAM's stock tried to bounce off round-number support near $50 in mid December. Unfortunately the bounce has been failing at the $54.00 level. Now the broader market is in sell-off mode and AKAM is testing major support at $50.00 again. A breakdown here could signal a drop toward the $44-45 area. Tonight we are suggesting a trigger to launch small bearish positions at $49.75. I am suggesting smaller positions to limit risk since AKAM can be somewhat volatile.

*small positions to limit risk* - Suggested Positions -

Short AKAM stock @ $49.34

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

Long FEB $50 PUT (AKAM160219P50) entry $3.43

01/07/16 triggered on gap down at $49.34, suggested entry was $49.75
Option Format: symbol-year-month-day-call-strike

CF Industries - CF - close: 34.14 change: -1.70

Stop Loss: 37.05
Target(s): To Be Determined
Current Gain/Loss: +11.7%
Entry on January 06 at $38.65
Listed on January 05, 2016
Time Frame: Exit PRIOR to earnings in mid February
Average Daily Volume = 2.7 million
New Positions: see below

01/07/16: CF continued to sink after yesterday's -8.6% plunge. Shares lost another -4.74% today and broke down under potential support at $35.00.

Tonight we will adjust the stop loss down to $37.05. No new positions at this time.

Trade Description: January 5, 2016:
CF underperformed the broader market and its sector in 2015. The S&P 500 lost -0.7% for the year while the IYM basic materials ETF lost -14.4%. Shares of CF returned a -25% loss last year. Momentum remains to the downside.

According to the company, "CF Industries Holdings, Inc., headquartered in Deerfield, Illinois, through its subsidiaries is a global leader in the manufacturing and distribution of nitrogen products, serving both agricultural and industrial customers. CF Industries operates world-class nitrogen manufacturing complexes in Canada, the United Kingdom and the United States, and distributes plant nutrients through a system of terminals, warehouses, and associated transportation equipment located primarily in the Midwestern United States. The company also owns a 50 percent interest in an ammonia facility in The Republic of Trinidad and Tobago."

It is important to note that CF is currently in the process of merging with OCI. Here's a brief description, "OCI N.V. is a global producer and distributor of natural gas-based fertilizers and industrial chemicals based in the Netherlands. The company produces nitrogen fertilizers, methanol and other natural gas based products, serving agricultural and industrial customers from the Americas to Asia. The company ranks among the world's largest nitrogen fertilizer producers, and can produce more than 8.4 million metric tons of nitrogen fertilizers and industrial chemicals at production facilities in the Netherlands, the United States, Egypt and Algeria."

Once the merger is completed they plan to move the new company's headquarters to the Netherlands to reduce their tax burden. Last year some U.S. government officials voiced their displeasure at these tax-inversion mergers to avoid paying U.S. taxes. There is a chance (albeit a small one) that the U.S. tries to stop this merger before it's completed.

Meanwhile the company continues to struggle with weak prices for nitrogen fertilizer. Looking at CF's last four quarterly earnings reports they have missed Wall Street's earnings estimates three of the last four quarters (and two quarters in a row). Revenues were down -8.3%, -15.8%, -10.9%, and -0.7% in the most recently reported quarter.

CF faces tough competition from fertilizer producers in China and in Russia and the Ukraine. It is worth noting that Bank of America just recently came out with a bullish call on CF. The BoA analyst suggested that fertilizer prices are too low and will bounce and CF's stock price should bounce with it. CF claims demand remains strong but that doesn't help if prices keep falling (obviously demand isn't strong enough or prices would rise).

Technically the path of least resistance is down and CF just broke support near $40.00. These are new two-year lows. Tonight we are suggesting a trigger to launch bearish positions at $38.85. Plan on exiting prior to CF's earnings report in mid February.

- Suggested Positions -

Short CF stock @ $38.65

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

Long FEB $35 PUT (CF160219P35) entry $1.20

01/07/16: new stop @ 37.05
01/06/16: new stop loss @ 38.75
01/06/16: triggered on gap down at $38.65, suggested entry was $38.85
Option Format: symbol-year-month-day-call-strike

GameStop Corp. - GME - close: 28.45 change: +0.08

Stop Loss: 29.05
Target(s): To Be Determined
Current Gain/Loss: +5.9%
Entry on December 11 at $30.22
Listed on December 10, 2015
Time Frame: 6 to 8 weeks
Option traders exit prior to January expiration
Average Daily Volume = 2.1 million
New Positions: see below

01/07/16: Alert! I am waving the yellow caution flag on our GME trade. The broader market nosedived this morning. Shares of GME saw a small gap down and then bounced. The stock managed to post a gain when the rest of the market is crashing. That's not a good sign if you're bearish.

Tonight I am inching the stop loss down to $29.05 since the $29.00 level is overhead resistance. More conservative investors may want to just exit now and lock in a potential gain.

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

01/07/16 new stop @ 29.05, readers may want to take profits now
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: 43.13 change: -0.27

Stop Loss: 44.55
Target(s): To Be Determined
Current Gain/Loss: +5.7%
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

01/07/16: HOG fell to new lows this morning but shares managed to pare their loss to -0.6% by the closing bell. That's significantly better than the S&P 500's -2.3% drop.

Readers may want to adjust their stop loss closer to $44.00 or just take some money off the table now.

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

01/06/16 new stop @ 44.55
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: 23.60 change: +2.31

Stop Loss: None, no stop at this time.
Target(s): $16.65
Current Gain/Loss: -8.2%
2nd position Gain/Loss: +18.6%
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

01/07/16: The stock market's decline is fueling gains for the volatility index. The VIX rose +21% today. The VXX followed with a +10% jump.

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


SolarCity Corp. - SCTY - close: 50.20 change: -0.24

Stop Loss: 47.95
Target(s): To Be Determined
Current Gain/Loss: -10.6%
Entry on January 05 at $53.61
Listed on January 04, 2016
Time Frame: Exit PRIOR to earnings (late January or early February)
Average Daily Volume = 3.8 million
New Positions: see below

01/07/16: Solar energy stocks were crushed today. The TAN solar energy ETF fell -9.15%. This marked solar stocks as one of the worst performers today. The main culprit was a -39% disaster in shares of SUNE. This pressured the whole group lower. FSLR lost -4.7%. CSIQ lost -15.7% today. SCTY fell -6.2% and broke down below its 200-dma and below recent support near $48.40. Our stop loss was hit at $47.95.

- Suggested Positions -

Long SCTY stock @ $53.61 exit $47.95 (-10.6%)

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

FEB $55 CALL (SCTY160219C55) entry $3.85 exit $1.61 (-58.2%)

01/07/16 stopped out @ 47.95
01/05/16 triggered on gap open at $53.61, suggested entry was $53.15
Option Format: symbol-year-month-day-call-strike