Making Two Double-Digit Percentage Gains and a New Option Recommendation

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

Markets pulled back sharply last week, with the Dow Jones down 3.26%, the S&P 500 tumbling 3.79% and the NASDAQ falling 4.06%. The MCSI Emerging Markets Index plummeted 6.89%.

ULTA Salon, Cosmetics & Fragrance, Inc. (ULTA) stopped out on Dec. 11 when it opened below its stop price at $179.69 for a 14.25% gain. You were also stopped out of Luxoft Holding Inc. (LXFT) on Friday at $77.20 and locked in a 10% gain in the stock.

Several positions fell below their 50-day moving averages, including Ultra Nasdaq Biotechnology ProShares (BIB), Manhattan Associates, Inc. (MANH) and Direxion Daily Small Cap Bull 3X Shares (TNA).

Still, two positions — Alaska Air (ALK) and Manhattan Associates, Inc. (MANH) — managed to hit new 52-week highs before pulling back.

After a textbook rally in October and November, December has gotten off to a surprisingly lousy start.

Friday’s sharp drop in stocks triggered a jump in indicators showing excessive pessimism. The CNN Fear and Greed Index dropped back into the “extreme fear” level at 25. The sharp sell-off in the markets also triggered a 65% jump in the VIX “fear gauge.” That’s actually one of its largest one-week moves in history, particularly when the VIX has been low.

Before you throw in the towel on a December rally, consider this…

Historically, volatility shocks, like the one we saw last week, have not boded poorly for the market. Investor nervousness has not translated into lousy performance.

Because of this track record over the past 30 years and strong seasonality, last week’s spike in volatility is actually short-term positive. Any further declines this week should offer an even-lower-risk situation just prior to the traditional year-end rally.

Exclusive  Betting on the Lithium Boom

To take advantage of the current pullback, I am recommending an options play on small-cap stocks similar to your current position in the Direxion Daily Small Cap Bull 3X Shares (TNA).

So buy the iShares Russell 2000 (IWM160115C00111000) January $111 calls, which last traded at $3.17 and expire on Jan. 15. This position expires within a month, so we will have to take profits on any bounce relatively quickly.

Portfolio Update

Alaska Air (ALK) lost 2.52%. Despite the difficult week for markets across the board, ALK still managed a new 52-week high early in the week. Raymond James increased its ALK price target last Friday to $105 — representing a potential 27% increase from last Friday’s close. Raymond James also holds a “Strong Buy” rating on the stock. The latest analyst ratings for ALK list eight other brokers calling it a “Buy,” three describing it as a “Hold” and only two setting it at “Sell.” ALK is a BUY.

Manhattan Associates, Inc. (MANH) fell 8.60% last week despite hitting a new 52-week high last Monday. Your bet on this global developer of supply chain software solutions is up 14.73% over the last three-month period and up 72.74% year to date. MANH moved below its 50-day moving average (MA) last Friday to become a HOLD.

Direxion Daily Small Cap Bull 3X Shares (TNA) dropped 14.42%. This play on a seasonal lift in the typically volatile small-cap stock sector takes advantage of the tailwinds from the “Santa Claus Rally,” as well as the “January Effect.” This bet is also engineered to take advantage of any move at 3x the rate of gain. However, a triple-leveraged play can move downwards at the same rate as well. Although TNA fell below its 50-day moving average and moved to a HOLD, I expect this oversold position to bounce strongly. This week’s related option recommendation is a bet on the expected strong bounce.


Signature Bank (SBNY) lost 4.02% for its first week in your portfolio as the broader markets suffered through one of their toughest weeks in recent months. SBNY works a smaller, but lucrative, slice of the banking pie, offering high-end clients, such as owners of private businesses, full commercial banking services via 27 private client offices throughout the New York metropolitan area. SBNY is a BUY.

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Nicholas Vardy

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