Dear Momentum Options Subscriber,

Harley-Davidson (HOG, $40.48, up $0.57) has been volatile of late with shares testing a fresh 52-week low of $38.88 Wednesday. The 3-year chart from yesterday’s Mid-Market Update showed risk to $37.50-$35 over the near-term.

With earnings due out a week from today, shares could remain choppy given the disparity in earnings. The average estimate of the 16 suits-and-ties who cover the company has HOG earning a profit of $0.20 a share on revenue of $1.03 billion.

The high estimates have earnings coming in at $0.24 a share on revenue of $1.08 billion. The low forecasts have HOG earning $0.20 a share on sales north of $980 million. This equates to a possible headline risk of a 4-cent beat, or up to a 4-cent miss.

The company missed estimates by 9 cents last quarter following three-straight beats of five cents, two cents and a penny, respectively. Another earnings miss for a second-straight quarter could send shares tumbling to the mid-$30’s.

There is also the chance of a snapback rally but Harley would have to beat on both the top and bottom line along with providing a rosy outlook for the current quarter. The current yearly dividend is at $1.24, or 31 cents a quarter. I would hate to speculate and say a possible dividend cut could be in store, but if sales continue to struggle or disappoint, it’s possible.

Harley-Davidson is an iconic brand but has struggled with cheaper bikes flooding the market. At some point, shares could be a buy. However, I would rather wait for HOG to settle at lower levels and wait for back-to-back quarters of earnings growth before initiating a stock position. In the meantime, I’m bearish on HOG heading into and after the earnings announcement.

As far as the market, the bulls are battling back and have held positive territory for much of the session. However, the gains are starting to fade, and the final hour of trading will be important in determining tomorrow’s momentum.

The Dow is gaining 69 points to 15,836 while the S&P 500 is up 4 points to 1,863. The Nasdaq is down 4 points to 4,467 and the Russell 2000 is higher by 3 points to 1,002.

I could have a New Trade ahead of the closing bell so stay locked-and-loaded in case I take action.

Momentum Options Play List

Closed Momentum Options Trades for 2016: 11-0 (100%). All trades are dated and time stamped so new subscribers can look at the past history to see how the trades have played out.

Do not risk more than 5% of your trading account on any one trade but do try to take all of the trades. Please remember, all “Exit Targets” and “Stop Targets” are targets. You should not have any “Hard Stops” entered to close any trades or “Exit Orders” in your brokerage account unless I list one. I will send out a “Profit Alert” or “New Trade” if I want you to close a position or if a new trade comes out. Otherwise, follow instructions at all times in the 9 a.m. and 12 p.m. – 1 p.m. updates. Also, I will usually give you a heads-up if I think I’m going to send an email outside of these time frames.

All prices given in this update are current as of 2:25 p.m. EST.

I hereby disclose that I will be participating in the following trade(s). Every Momentum Options recommendation is listed with the price at which I entered my own position. If the price is slightly different than my recommended entry or exit price when you receive the alert, don’t let that keep you from getting into or out of a trade. Occasionally, you might even get a better “fill” price than what is posted in the portfolio.

 

Garmin (GRMN, $33.09, up $0.74)

GRMN February 30 puts (GRMN160219P00030000, $0.67, down $0.09)

Entry Price: $0.93 (1/20/2016)

Exit Target: $2.00

Return: -28%

Stop Target: None

Action:  Resistance is at $32.50-$33 followed by $34. Support is at $32-$30. Earnings are due out on Feb. 17.

You can read my expectations for earnings in the Jan. 12 Pre-Market Update.

 

Harley-Davidson (HOG, $40.48, up $0.57)

February 37.50 puts (HOG160219P00037500, $0.95, down $0.33)

Entry Price: $1.20 (1/20/2016)

Exit Target: $2.40

Return: -21%

Stop Target: None

Action: Resistance is at $41-$42. Support is at $38.75.

 

Trades on Hold — other 2015 Portfolio Open positions (2): These are trades that are still open in the portfolio but are down over 50%. They have longer expiration dates and are on “hold” but are not worth mentioning until they turn around. This means I would not open any new positions. I’m still keeping track of the trades and will record the results accordingly when the trade closes or if the options expire. Click on the Open Trades and Closed Trades pages to see all open and closed positions.

General Electric (GE) February 32 calls — Continue to hold. Earnings are due out Friday morning and could decide the fate of this trade ahead of the weekend.

3D Systems (DDD) February 11 calls — Continue to hold.

Trade on!

Rick Rouse
Editor and Chief Options Strategist
Momentum Options