Since we do not know which direction the market will take next week, we should be prepared for a trade in each direction.
This is probably the hardest week of the quarter for picking stocks. More than 80% of the stocks that have not already reported Q4 earnings, do so in the next three weeks. Since we do not want to hold over an earnings report that makes it tough to find candidates.
Add in the three-week market crash and the short squeeze rebound and indecision is everywhere. Will the rally continue? Will the lows be retested? Will we see lower lows? Will Apple crush the market with an earnings miss on Tuesday? Will the Fed raise rates on Wednesday? When you start adding up all the possibilities it will make you crazy.
What we cannot do is let the indecision paralyze us into not trading or putting all our money into a lottery ticket on the market. Maintain a rational position size so you can sleep at night and let the market do its thing.
NEW DIRECTIONAL CALL PLAYS
LULU - LuluLemon
LuluLemon designs, manufactures and sells athletic apparel and accessories for women, men and female youth. They operate through corporate owned stores and sell direct to the consumer online. They are best known for their yoga style clothing. Full Company Description
LuluLemon surprised everyone when they raised their guidance for Q4 sales saying they had a great holiday season. The company preannounced strong sales when most other retailers were posting losses or mediocre gains. The company now expects Q4 revenues in the range of $690-$695 million compared to prior guidance for $670-$685 million. This represents nearly 19% year over year growth on a constant currency basis.
Earnings guidance was raised to a range of 78-80 cents, up from 75-78 cents. Analysts were expecting 77 cents. The company said it entered 2016 with a bang thanks to a better than expected holiday season and continued increases in store traffic.
Cowen raised the target price from $52 to $66. Wells Fargo ungraded them from neutral to outperform with a target of $65. Jefferies upgraded it from hold to buy and gave it a $70 price target. Credit Suisse maintained its outperform rating but raised the target to $60. Suntrust Robinson reiterated a buy with a $66 target. Morgan Stanley reiterated an overweight with a target of $68. Morgan called it their favorite "turnaround" stock for 2016. Barclays issued an overweight rating with a target of $85.
It is amazing what a little positive guidance can do for Street ratings.
Earnings are March 9th.
With a trade at $59.05:
Buy March $60 calls, currently $2.81, initial stop loss $54.65
NEW DIRECTIONAL PUT PLAYS
JUNO - Juno Therapeutics
Juno is a biopharmaceutical company that develops cell based cancer immunotherapies. Full Company Description
Juno has been very active in buying up its competitors. On January 11th the company announced the acquisition of AbVitro for $125 million. That is their third acquisition in 12 months. However, Illumina (ILMN), ten times larger than Juno, is also on the same track and announced a similar acquisition on the same day.
Juno claims there is more than enough room in the space for both Juno, Illumina and Celgene (CELG) another competitor in the space. Apparently investors are not convinced. Shares of Juno have been in decline since early December and they hit a post IPO low last week. The rebound was lackluster and in a good market on Friday, they only gained 8 cents.
I expect to see a lower low in the weeks ahead.
Earnings are March 17th.
I am putting a downside entry trigger of $31.50 and upside stop just over the highs of last week at $35.15.
With a trade at $31.50
Buy March $27.50 put, currently $1.65, stop loss $35.15
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