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Daily Newsletter, Saturday, 11/29/2014

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

Market Wrap

OPEC Declares War

by Jim Brown

Click here to email Jim Brown

OPEC's failure to cut production was a declaration of war on the U.S. shale industry and the first salvo may have been a knockout punch.

Market Statistics


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OPEC met in Vienna on Thursday and despite a lot of posturing they elected to keep the current 30.0 mbpd production target unchanged. They are already over producing that target with 30.9 mbpd last month. The official statement suggested they were comfortable letting oil prices seek their own level in an over produced market with slowing demand in Europe and Asia. They may regret this decision.

In reality Saudi Arabia and the GCC states of Kuwait, Qatar and the UAE would have been expected to bear the brunt of any announced cuts. The other 8 OPEC members led by Iran and Venezuela would never have honored any production cuts but they would have benefitted from cuts by the GCC states. Apparently OPEC has died as a price fixing cartel. It is every country for itself and Saudi Arabia is holding the winning hand. Saudi Arabia's cost to produce oil is under $10 a barrel. They currently produce over 9.0 mbpd and if they take off their current internal production limits they could conceivably produce another 2.0 mbpd within 6 months. They would still be making money on their oil and the extra 2.0 mbpd would offset the lower prices.

Meanwhile the other OPEC nations with costs of $30, $40 and even $60 a barrel will barely be breaking even with Brent at $70. Saudi Arabia has not only declared a price war on the other OPEC nations it has declared a war on the U.S. shale industry.

Many of the shale producers have costs in the $60-$70 range and they will not be able to continue their aggressive drilling programs without oil prices over $80 a barrel. Shale oil has a large percentage of super light condensate and it sells for a lower price than WTI. There is also the transportation factor from the shale fields to the refineries and with a shortage of pipelines a lot of the oil moves by rail. This transportation cost also lowers the price producers get for their oil. Typically Bakken crude sells for $7 to $10 under WTI prices and sometimes at even more of a discount.

The breakeven point on the Tuscaloosa-Marine Shale in Louisiana and Mississippi is $79.52 a barrel because the wells are 2 miles deep vertically before they turn horizontal. These wells cost more to drill. Bloomberg produced a chart of the highest cost U.S. shale areas, which produce about 413,000 bpd. Link to article I think it is safe to say there will be very little new production from those areas.


With WTI closing at $66 on Friday that means shale producers could be forced to sell their oil from $55 to $60 and at or below costs. While existing wells will continue producing those drillers will be hard pressed to fund many new wells. Lending covenants for many producers could be in trouble. We could see some forced sales and significant M&A activity along with a dramatic decline in active rigs. Without the solid cash flow produced by $85-$100 oil that drillers have seen for the last 3 years there are serious concerns that many drillers will not be able to pay their bills.

Energy companies are heavy borrowers in the debt market. Analysts claim energy companies are responsible for 15% to 20% of all the high yield debt in the market. If their cash flows dry up this debt is going to come back to haunt them along with the current holders of that debt.

The carnage in the energy sector was huge. The smaller drillers and service companies were decimated with declines in the -20% to -30% ranges. This hit the drillers, frackers, sand companies, rail car companies and even the railroads.

Sorted by percentage loss

The larger companies posted huge dollar declines with the percentage losses in the teens on average. Continental Resources (CLR) was especially hard hit because they closed their hedges for 2014 and 2015 a couple weeks ago thinking the worst was over and prices were going to return to $85-$90. Continental produces more than 10,500 bpd from the South Central Oklahoma Oil Province (SCOOP) and the breakeven rates for the region range from $79.28 to $186.73 per barrel. Sandridge (SD) pumps over 23,000 bpd from the Mississippian formation and the breakeven there is between $78.56 and $163.51 per barrel. The company has 1.85 million acres under lease.

Exxon (XOM) is not at the top of the losers list because they only declined -$4 and -4%. Conoco (COP) declined -$5 and -7% and Chevron (CVX) -$6 and 5%. They are diversified and their average cost per barrel is significantly less and they have plenty of cash to weather the storm.

Sorted by dollar loss

This oil war could easily have some seriously unintended consequences. For instance the U.S. dollar remains the chief reserve currency of the world mainly because of the money the U.S. spends on oil imports. These petrodollars go to oil producing countries around the world and they put those dollars to work buying goods from other countries including the USA. In 2006 this petrodollar outflow peaked at $511 billion a year. That is windfall cash for producers exporting to the USA. They recycled that cash and provided dollar liquidity though out Asia, Europe and South America.

According to BNP Paribas 2014 will be the first year of negative outflows in 18 years and much of that is due to the plunging price of oil. The BNP chart below shows the net outflows by region. Note that the purple (Middle East) share is declining rapidly and Latin America in orange has disappeared for 2015.


What this means is that instead of swimming in dollars as in the past the oil exporting nations have very little dollars flowing into their central banks. Their budgets were built on exporting oil to the U.S. and using those dollars for purchases elsewhere. Without the inflow of dollars they are forced to withdraw capital from the markets to pay their bills. Essentially they are being forced to eat their reserves. Oil exporters are being forced to pull liquidity out of the markets rather than using dollars as their purchase currency.

The sharp drop in oil prices plus the rapid expansion of U.S. production means significantly less revenue for oil exporters. Just like in every business or personal scenario less revenue in means less spending. This means U.S. exports of other goods like clothing, computers, etc, will slow. The rising U.S. dollar means other currencies are worth less. Not only are oil exporters faced with falling income denominated in dollars but their own currencies are declining in value.

BNP believes net capital outflows by energy exporters will decline -$253 billion in 2014. That is $253 billion less liquidity for the global markets. With oil prices imploding late in 2014 this means the 2015 numbers are going to be even worse. This will result in lower amounts of trade between countries around the world.

The falling oil prices will result in lower global GDP by -0.5% or more. Effectively all the oil producers just saw their income fall by nearly 40% compared to 2013. Lower income creates lower spending and lowers GDP. Oil and gas exporters account for 26% of total emerging market GDP and 21% of external bond demand.

The OPEC nations are playing a dangerous game here. As their income declines the amount of money available for social programs declines and the risk of social unrest increases. The difference between $90 oil and $70 oil could be the difference between a stable government and a collapse. Just look at Libya for an example of what could happen if these tightly controlled governments begin experiencing cash shortfalls.

The petrodollar is dying. The U.S. House is considering allowing oil exports and that will make it even worse. If we begin exporting oil it will further decrease our net dollars spent on exports. Since our oil exports will be priced in dollars it will require other countries to suck dollars out of their financial markets to pay for our oil. India, China, Russia and Brazil are already trading oil in currencies other than dollars. This is weakening the long term outlook for the dollar as the reserve currency. There are troubling times ahead as a result of the implosion in oil prices.

I wrote an article on OilSlick.com last week on why the U.S. should use oil as a weapon against Russia, Iran and Venezuela. I received quite a few positive comments on it. This drop in oil prices makes our oil production an even stronger weapon. Read it here

The crash in crude prices is going to create a dot.com type disaster in the energy sector. The companies with a strong business model and low debt will survive but the companies operating on highly leveraged debt to cash flow are going to disappear when their cash flow disappears. These crude prices are probably going to stay with us for the next six months at least because OPEC does not meet again until June. They could call an emergency meeting if the financial bleeding becomes too bad.

Meanwhile the U.S. consumer is going to reap a windfall gain in the decline of gasoline prices. The national average on Friday was $2.79 and the lowest for this period since 2009. Analysts believe it could decline to $2.55-$2.60 by Christmas.


There is a positive side to the OPEC decision. Dramatically lower oil prices rapidly increase demand and stimulates the global economy. This painful decline in oil prices could end up doing more to stimulate the global economy than Mario Draghi and Shinzo Abe combined. Goldman has said for every 25 cent drop in oil prices the daily demand for oil could increase +500,000 barrels. If gasoline prices to drop to $2.60 on average that could increase demand by well over 1.0 mbpd in 2015. We have already seen one restaurant chain beat on earnings because the lower gas prices boosted traffic on the interstates. Cracker Barrel (CBRL) beat on earnings and raised guidance because of higher traffic. Multiply that all across the world and it becomes a powerful economic stimulus.

Also, falling oil prices are going to dramatically impact inflation in the U.S. and keep the Federal Reserve on the sidelines for a lot longer than previously expected. Citigroup started the ball rolling by moving their estimate for the first rate cut to December 2015. Several other analysts have now moved their targets to early 2016. Analyst Richard Bove believes the Fed will not be able to raise rates until well into the future even if they wanted to. With the global economy slowing and U.S. inflation set to decline the Fed is trapped. If they raised rates the dollar would strengthen even further at a time with Europe, Japan and China are actually devaluing their currency.

Crude production in the U.S. was 9.077 mbpd last week and the highest since 1986. Production is still expected to increase over the next six months because of projects already underway. The money has been spent and the rigs contracted for several more months. The IEA expects U.S. production to rise to 9.4 mbpd for the full year. Gulf of Mexico production is expected to increase by 500,000 bpd over the next two years as several massive projects underway for the last several years finally begin to produce.

Friday's oil crash was not limited to oil. Natural gas prices declined -6% in sympathy even though a slowdown in shale drilling for oil would also generate less gas. This was a "dump anything energy related and ask questions later" day. First Solar (FSLR) fell -5%, SolarCity (SCTY) -3% and SunEdison (SUNE) -5%. Even Cameco (CCJ) a uranium miner declined -4%. Neither Cameco or those solar stocks have anything to do with oil. Cheaper oil will not impact the need for natural gas or uranium.

On the economic front there were no reports on Friday. All your government employees were out shopping on Black Friday.

The calendar for next week is full of important reports. The Week starts off with the ISM Manufacturing, which is a national report. After the volatility in some of the regional reports this will be of great interest. A fractional decline is expected.

The ISM Nonmanufacturing (services) report is out on Wednesday and analysts are expecting a fractional increase.

The big news for the week is the ADP Employment on Wednesday and the Nonfarm Payrolls on Friday. The ADP report is expected to show a minor increase of +5,000 jobs over the 230,000 new jobs reported for October. The Nonfarm Payroll report is expected to show an increase of just over 20,000 jobs from the 214,000 reported for October. That October report is expected to be revised higher.

The challenge here is that the weekly jobless claims have been rising for the last three weeks and posted a 12 week high at 313,000 last week. Rising jobless claims are an indicator of falling employment numbers. I would not be surprised to see the Nonfarm number fall below 200,000 new jobs despite the strong temporary hiring for the holidays.


More negative news out of Japan, China and India plus a drop in Eurozone inflation to 0.3% sent investors into treasuries once again. The yield on the ten-year fell to 2.19% and a six-week closing low.


There was very little stock news on Friday but there was plenty of stock movement. Airline stocks soared on the OPEC decision and the drop in crude prices. United Airlines (UAL) spiked +8% on the oil news with Delta (DAL) gaining +5%, Alaska Air (ALK) +5% and Southwest (LUV) +6%.


Even Carnival Corp (CCL) gained +5% on the oil drop. I have a hard time trying to decide why Carnival would be so dependent on oil prices but they do use a lot of fuel. I suppose they could get a minimal boost from consumers paying for cheaper gasoline but I have a hard time justifying a 5% boost in the stock price.


Retailers, led by Walmart (WMT), rallied on early reports that the malls were packed and shoppers were carrying bags of merchandise. Of course Walmart will also benefit from the lower gasoline prices for consumers and lower diesel prices for their fleet of 6,500 trucks that drive more than 700 million miles a year. Walmart shares rallied 3% on the drop in oil.


UPS (UPS) rallied +3% on the drop in oil prices even though they won't see much of the savings. They went to a fuel surcharge program several years ago so shipping prices fluctuate with the price of oil. Obviously it will benefit them because of their huge fleet of trucks and planes but shippers will benefit as well. UPS workers were out in force on Friday after UPS cancelled their normal Black Friday holiday they had enjoyed for years. I talked with my UPS driver when he delivered on Friday and he was not too upset. Like most guys he never rushed out on Black Friday to shop. Men would rather go to the dentist than stand in line and fight the crowds. He said having Black Friday off always meant they worked until long after dark on Monday to catch up with the packages that result from the pre Friday sales.


Here is another mystery. Constellation Brands (STZ), a distributor of beer, wine and spirits, surged 2% to a new high on Friday. I don't see any oil connection so I am assuming it was simply a dose of holiday cheer. Lower gasoline prices may leave consumers some left over cash for an extra bottle or wine but that is the only reason I could see for the rally.


Vodafone (VOD) said it was considering a deal to buy Liberty Global (LBTYA) to create Europe's largest phone, Internet and TV company worth more than $130 billion. Vodafone said it was analyzing the financial and regulatory hurdles as well as investor support for a share based transaction. The company said it also had concerns about the debt levels of the combined company. Shares of VOD rose +2.9% and LBTYA rose +7.4%.


Best Buy's (BBY) website crashed Friday morning for an extended period as an army of shoppers clicked in to see what specials they had available. The company said "A concentrated spike in mobile traffic triggered issues that led us to shut down BestBuy.com in order to take proactive measures to restore full performance,"

About 5:30 the site went down again with the company claiming "record levels of traffic" were affecting site performance. People taking to social media to complain also said it was briefly down late Wednesday night and again around 9:AM Thursday morning.

Best Buy quit releasing comments on the repeated outages and simply posted the message below.


Markets

U.S. markets posted a strong gain for the month with the Dow and Nasdaq finishing at new highs. The S&P suffered a -5 point decline that was purely related to the drop in energy stocks. The S&P closed at 2,067.56 with the 5-day average at 2,068.07 to end the consecutive day winning streak. The S&P had closed over that short term average for 29 consecutive days and the longest streak on record. The streak really has no relevance and is more of a fun fact to follow but it does give us an idea on the staying power of this rally.

The markets are very overbought but they just keep rising. The S&P has rebounded +11% since the October 15th low. The gains in November were lower with the Dow and S&P adding +2.5% with the Nasdaq adding +3.5%. Stronger than expected earnings and guidance along with positive expectations about Q4 retail sales and profits have stimulated investors. The upgrade in the Q3 GDP to 3.9% also helped. It is often reported that new highs tend to attract money from the sidelines faster than flies to a picnic.

Once the impact of the oil crash on energy stocks has passed the S&P should return to gains in the week ahead. There are 43 energy stocks in the S&P-500. Friday was month end and the next couple days should see some retirement money being put to work. However, early December is when tax selling begins. Whether we see that cycle or not is unclear after the nearly -10% drop in October. If managers were planning on taking tax losses in December on specific stocks the October dip could have accelerated that process.

The S&P has plenty of support levels just under the 2,067 close so it would take some concentrated selling to push it much below 2,050. At this point buyers would love to see a dip and every intraday dip continues to be bought.


The S&P is overbought with 84% of stocks trading over their 50-day averages. The 84% to 88% level has been a top for the last two years. However, December is the most bullish month in the year. Since 1950 the S&P has been up 48 times in December and down 15. The average gain was +1.7%. We can remain at this level for weeks given the historical trends and the bullish fundamentals. Eventually we are going to revisit lower levels but probably not until January.


Only 73.8% of the S&P stocks have a buy signal on the Point & figure charts. This gives us room for further upside gains with 85% the normal peak.


The Dow chart is still locked in a resistance battle at the 17,850 level with 17,800 current support. It was a miracle the oil crash did not knock the Dow for a big loss with the three biggest energy losers giving back $15 or the equivalent of -120 Dow points. Fortunately the retailers carried the day with Walmart, Home Depot, etc all packing on gains.

The Dow only added 18 points for the week but managed to close at a new high. That shows you just how tight the trading range was for the Dow. The chart below shows it perfectly with four spikes out of congestion that were immediately sold to knock it back to the 17,825 level.



The Transports should have been the big gainer but the morning spike to 9,310 was sold hard to leave the index with only a +2 point gain at 9,198 and -112 points off its highs. The selling came at the expense of the railroads, which have been transporting a lot of sand and oil and that could decline. CSX lost -4%, KSU -5%, NSC -5% and UNP -5%.


The Nasdaq big caps soared on Friday with a +20 point gain. This was by far the biggest index gain. The NDX came within 3 points of the uptrend resistance at 4,350. For the last three days Apple has stagnated and failed to push the index higher but I think that is about over. Apple closed today at $118.93 and only 7 cents below the historic high. Next week could see another surge begin.


The Nasdaq Composite traded over the round number resistance at 4,800 for most of the day but sellers appeared at the close to knock it back to 4,792 and -18 points off its high. It was still a new 14 year high and it is now only 5% below the historic high close of 5,048 set back in March 2000.

The Nasdaq has been pretty vertical since the 20th and should rest soon. It has added +150 points in only six trading days since the low on the 20th. Initial support should be around 4,755 followed by 4,700.



The Russell 2000 collapsed on Friday with a -17 point drop. The reason should be obvious since there are quite a few energy stocks that fall into the small cap category. While I don't think this is a trend change for the Russell I also don't think the selling is over. Investors that were at the malls on Friday are going to be setting at their computers at the open on Monday to dump those lousy energy stocks. Monday could be a capitulation day for energy equities.

The Russell fell back to interim support at 1,175 but we could easily test 1,150 on Monday. This is frustrating because Wednesday's gains pushed it over near term resistance and it was poised to target the old highs at 1,208.


Next week could be tricky. Monday and Tuesday should be positive unless the continued selling in the energy sector poisons the market. Month end retirement funds should be hitting the market to offset at least some of that energy selling.

The latter part of the week is facing the two big payroll reports and the beginning of tax selling season. Tax selling can take two forms. The first is when an investor sells underperforming stocks at a loss to offset the gains on assets that have outperformed. The second case is when an investor sells a position for a loss in order to offset gains elsewhere but then repurchases that same stock more than 30 days in the future. For instance an investor that has been holding Core Labs (CLB) in their portfolio since April. His basis is $200 and the stock closed Friday for $129. He still believes in the stock but he has gains in other stocks he wants to shelter. He sells the CLB position and takes the $71 loss to cover gains elsewhere. After 30 days passes he buys back the CLB shares to hold for the eventual recovery. There may be a lot of tax selling in energy stocks this year since the high for the year was in June. There are a lot of losses being carried in investor portfolios. I see this as an opportunity once the carnage is over. Oil will not stay low forever. The more production is knocked off line the faster prices will recover. Put some energy stocks on your shopping list for January.

According to the Stock Trader's Almanac 2015 should be a banner year. It is by far the best year of the 4-year cycle and especially in a second term president. Since 1939 the Dow has averaged a 16% gain, S&P +16.3% and the Nasdaq a +30.9% gain. Years ending in five have only had one down year in the last 13 decades. The average gain is 28.3% for the Dow, +25.3% for the S&P and +25.6% for the Nasdaq. For the current election cycle the current quarter and the first 2 quarters of next year average gains of 21% for the Dow and S&P and +34% for the Nasdaq. Finally, in the last 84 years there have only been 3 times where the markets were up double digits 3 years in a row. In each of those occurrences the 4th year was up an average gain of +23.1%. Let's all hope really hard that all those historical averages repeat in 2015.


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Random Thoughts

I hope you had a happy Thanksgiving and restrained yourself on the Black Friday shopping. A friend sent me this cartoon and I thought it was appropriate.


It is official. We kicked the Iranian can farther down the road. The administration's game plan appears to be "if we can't get a deal then postpone the deadline until we are out of office." After repeatedly claiming over the last six months that the deadline would not be extended and the sanctions would come back in full force on November 25th, the deadline was extended until July. The sanctions relief will remain in force until the next immovable deadline in July. Over the last six months since the sanctions were weakened in an effort to bring Iran to the negotiating table the country received between $4.6 to $11.0 billion in cash and non-oil imports that had been restricted under the sanctions. This program of relaxed sanctions will remain in place until July and they will receive another $5-$11 billion in cash and allowed imports. For a country that refuses to negotiate they are doing really well.

Not only are they profiting from the delays but the officials continue to be belligerent about the chances for a deal and warn that Israel's security is declining as each day passes.

The problem with getting an agreement last week boiled down to three things. Iran did not want to give up even a little on the uranium enrichment front and they still don't want to let inspectors into their nuclear research facilities. The third thing was a complete objection to any of the terms of the proposed deal by all of the Western allies. All the countries in the Persian Gulf objected. Saudi Arabia objected strenuously saying it was a bad deal. Israel objected vigorously and repeatedly. The other five western nations in the negotiations objected. Apparently the only person arguing for a deal was Secretary Kerry. The president is so anxious to get any win on a foreign policy initiative they were willing to give up almost anything. The final draft was so watered down Iran only had to agree to a 12 month window on enrichment. The draft deal supposedly prevented Iran from enrichment levels that would keep them from creating a nuclear weapon for a minimum of 12 months. That is not a deal for the West but Iran still opposed it. We can guess why. Our only hope now is that oil prices will drop so low that Iran will not be able to fund its nuclear research for the next seven months.

I wrote about Amazon's Web Services and their massive scale several weeks ago in the nightly commentary. As a former tech geek earlier in my career I find technical details about cutting edge technology fascinating. For an old guy that used to manage a datacenter for Exxon in the 1960s I cannot even comprehend the scale of Amazon's cloud. I found a new article describing the efforts they went through to build this massive cloud product. If you are not tech literate I doubt you will get much out of it but geeks of the world will enjoy it. The Massive Scale of AWS

With the drop in oil prices everyone is turning to the question of what does it cost to produce oil in various fields. By determining a field's breakeven cost and knowing who is drilling in that field you can decide who is likely to cut capex the most, who is likely to have cash flow problems, etc. Well your research problem has been solved. Ed Morse at Citigroup has put together a breakeven chart for not only all the shale plays in the USA but all the fields in the world. Yes, the world. He points out that there is a lot of oil available at $90 oil because producers can hedge their production to protect cash flow. However, at $70 or less the margins are too slim and there is no hedging capability in the futures markets. Here are the charts. Citi Cost per Field

Google has thrown in the towel on renewable energy. Back in 2007 Google promised to go green to stop global warming. They installed all kinds of renewable energy using wind, solar and several experimental programs. They spent billions on the effort. In 2009 the Green Energy Czar at Google, Bill Weihl boasted, we have a 50:50 chance of having multiple megawatts of plants installed over the next three years. Oops! No plants and Bill is no longer at Google.

Larry Page had a program called "Renewable Energy Cheaper than Coal (RE Jeremy Grantham, fund manager at GMO, sent a letter to clients saying the market could surge another 10% from here before getting into bubble territory, which starts at 2,250 on his charts. However, he said picking stocks today was tough with many individual stocks over valued. He also points out that the best seven months in the third year of a second presidential term have averaged about +2.5% per month. Seventeen of the last 20 third year periods have been bullish with 3 bearish and averaging about a -6.4% decline. With the eurozone and Japan increasing stimulus it should help the equity markets.

Vladimir Putin is still projecting the Russian flag all around the world. Russian warships entered the English Channel for "exercises" on Friday. The four warships were led by the anti-submarine ship Severomorsk. The real purpose of the exercise is to remind everyone that Russia has a military force and is not afraid to use it. The flotilla was shadowed by the Royal Navy warship HMS Tyne.

On Friday Russia test fired a new Bulava nuclear ICBM from the Alexander Nevsky submarine from a position in the Barents Sea. Russia claims the sub launched missile has a range of 8,000 miles and can carry up to 10 nuclear warheads. Russia is spending $400 billion on new weapons and upgrades by 2020. The U.S. is cutting its military budget by $400 billion.

I want to thank everyone once again for supporting the Option Investor family of newsletters. Reward yourself now for 2015 and that will be one less item on your list of New Year's resolutions.

Most of the indexes are near new highs and the outlook for the future is improving. Analyst year-end estimates are rising almost daily for next year. Don't go through 2015 alone. Take advantage of our 16th annual End of Year Renewal Special today. Don't wait until the last minute.

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Index Wrap

Market May See Limited Further Near Term Gains

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

I'm pretty much in repeat mode from last week when I say again that "The Market has had a very strong move up from its last low but (finally) appears to be hitting some technical resistance."

I've been highlighting in recent weeks the 21-day moving average envelope indicator as a way to ascertain the last major low (mid-Oct.) and going forward, a potential rising line of resistance. Use of Moving Average Envelope indicator with the major stock indices is a way of ascertaining lower and upper extremes relative to a 'centered' mean; i.e., a moving average in this case.

I just completed an overview in my most recent Trader's Corner article on the strategic use for the moving average envelope indicator for the major stock indices. But which I don't use for individual stocks - too much variation. This indicator adds 'envelope' lines set by the user (to float) at an upper and lower percent value relative to a 'centered' moving average. I use '21' as the length setting for the moving average envelope study or indicator. I hope the aforementioned article link will provide a useful primer on how this indicator for the indexes can provide periodic guidance on projecting future highs and lows.

The Relative Strength Index or RSI is showing overbought extremes in all the major indices except the Russell 2000 (RUT). RUT looks like the first index to suggest that peak values for now may be at hand. Bullish sentiment was high in the week prior to the holiday shortened past week. That and 'leveling off' price action in the S&P indices and the Dow suggest that a sideways to lower correction may be upon us. Stay tuned!

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX) DAILY CHART:

The chart has been strongly bullish for some weeks relative to the mid-October bottom but a line of resistance has formed at recent intraday highs; i.e., resistance is suggested around 2075. This recent pattern, even though in a low volume week, suggests that there may not be any or much more upside potential just ahead. SPX (and the Market) is 'due' for a pause or pullback.

Immediate overhead resistance as noted comes in at 2075, with resistance probably extending to 2100. What I note as next resistance above 2075 is at the 3.5% upper envelope line, currently intersecting at 2115.

Near support continues to be highlighted at 2040, which is both suggested prior technical/chart support and this area also the current intersection at the technically important 21-day moving average. Next support and likely to be fairly major support is at the milestone 2000 level.

SPX is at an overbought extreme as measured by the 13-day Relative Strength Index (RSI). Moreover, trader bullishness was fairly high coming into this past week. Price action, and the aforementioned key indicators suggest risk of a sideways to downside correction in the near to intermediate-term.

S&P 100 (OEX) INDEX; DAILY CHART

OEX is bullish in its pattern but the Index has rallied so substantially from its recent bottom that the natural tendency to eventually pause or pull back is starting to be felt. OEX saw repeated intraday highs in the same area just under 920. True, a low volume Thanksgiving week but I don't 'discount' 'leveling off' price action in an 'overbought' situation just because volume was relatively low. Still, the real test should come on more normal participation is the coming week. Stay tuned but I anticipate a pause or pullback ahead that would 'throw off' the high current RSI reading.

Near resistance is at 918-920, with fairly major resistance projected in the 940 area, as implied by the upper envelope line. This isn't like a prior actual high but is one way of projecting an upper 'extreme' for a next price swing.

Key near support in the 905 area is suggested by a line of prior support and at the 21-day moving average. Support extends to the milestone 900 level. Next support looks like 885-890.

Along with the other major indices OEX is at an 'overbought' extreme as measured by the Relative Strength Index on a 13-day time frame.

THE DOW 30 INDUSTRIAL AVERAGE (INDU); DAILY CHART:

The Dow 30 (INDU) has been on tear along with the other major indices but leveling off price action is seen with recent intraday highs forming at and just under 17900. Resistance is seen at 17900-18000. If there was to be another up leg, next resistance is projected in the area of the upper 4% trading 'band'/envelope line currently intersecting in the 18350 area.

Chart support is seen at 17600, extending to 17400. Fairly major support begins in the 17200 area.

The Dow has been led especially by STRONG weekly uptrends in CSCO, DD, DIS, GS, HD, INTC, JNJ, KO, MMM, MSFT, NKE, PG, TRV, UNH, V, and WMT. These 16 stocks, just over half of the Dow 30 Average, could continue to propel INDU higher, and lead the Market up also.

A pause/pullback is not a slam-dunk but INDU when looked at as a whole, is suggesting a momentum slowdown. Still, the bottoms up analysis of the monster cap INDU has been showing very strong buying interest in a good portion of the Dow Industrials. GE which is a Dow 'bellwether' stock has stopped moving up and has fallen back some from its prior highs. The fact of an overbought reading in the Relative Strength Index lends some technical support to the risk of a correction from recent highs.



NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:

The Nasdaq Composite (COMP) and big cap Nas 100 (NDX) did not level off this past week as was seen in the S&P and Dow, or of course like the near-term downside reversal in the Russell. Still, I think COMP is nearing potential resistance, first at 4800, then at 4900.

Fairly major resistance is assumed at the milestone 5000 level. The March 2000 all-time COMP monthly high was just over 5100.

Near COMP support is at 4680-4700, with next chart support in the 4600 area.

COMP is also at an 'overbought' RSI extreme but this is an ancillary indicator, not a primary one as overbought conditions can persist for lengthily periods in strong bull market trends. Trader bullishness, as measured by my CPRATIO sentiment indicator tapered off this past week and is no longer 'extreme' as I see it. In the week before this indicator was showing some excess.

NASDAQ 100 (NDX); DAILY CHART:

I noted over the past week(s) that "I'd be scaling out of NDX call positions on a move into the 4300-4350 zone" and such an advance into this price zone came this past week as NDX continues its advance. The chart remains bullish but the more or less straight up move suggests some risk of a correction. 'Straight up' sometimes leads to straight down or to a significant pull back at least; e.g., back to 4200 support.

NDX is the one index that could be headed again to potential 'resistance' at the upper trading band or envelope, currently intersecting just over 4400. Near resistance is highlighted at 4360. Pivotal near support has advanced to 4300, from 4200, which looks like second tier or next lower support in the area of NDX's 21-day moving average.

Of course NDX is at an 'overbought' RSI extreme. What else could be after a straight up move! The Nasdaq 100 volatility Index, VXN is back down to a relatively low level. This can be construed as mildly bearish the longer this goes on but we can't do market 'timing' based on it.

All in all, NDX is vulnerable to a correction but hasn't had any downside reversal type price action so is an unproven theory at this point!

NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:

I also wrote in the past couple of weeks that "QQQ 'resistance' and a next potential upside 'target' was to 105, extending to 106." I also suggested a speculative counter-trend short of this ETF in this zone. IF short QQQ, my suggested exiting stop is at 108.

Resistance is seen in the very near-term at 106-106.25, then at 107.8.

Near support is highlighted at 104, with next anticipated support coming in around 102.8-102.9, an area of prior buying interest and at the 21-day moving average currently.

On Balance Volume (OBV) continues to trend higher but daily trade volume is very low. OBV is in sync with the strong uptrend but daily volume is mixed in that buyers don't appear to be still active at current lofty levels.

RUSSELL 2000 (RUT); DAILY CHART:

The Russell 2000 (RUT) per my statement last week of RUT possibly being the 'canary in the coal mine' relative to the overall Market as suggesting that peak stock prices may be at hand for now.

RUT looks to have traced out a near-term top in the 1190 area, well shy of its prior top/high in the 1213 area.

From the line of prior intraday highs around 1190, Friday saw a sharp pullback to support implied by the 21-day moving average. Next support looks like 1160-1153, extending to the 1140 area.

The declining RSI in the face of an overall sideways trend as noted last time has suggested this pattern as a bearish price/RSI divergence.


GOOD TRADING SUCCESS!




New Option Plays

The Force Awakens

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

The Walt Disney Co. - DIS - close: 92.51 change: +0.59

Stop Loss: 88.65
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 6.5 million
Entry on December 01 at $---.--
Listed on November 29, 2014
Time Frame: exit prior to February expiration
New Positions: Yes, see below

Company Description

Why We Like It:
Disney is an American icon. The company is over 90 years old. They have grown into a massive content generating giant. Today DIS runs five business segments. Their media networks include broadcast, cable, radio, publishing, and digital businesses headlined by their Disney/ABC television group and ESPN Inc. DIS' parks and resort business includes Disneyland, Disneyworld, plus theme parks in Tokyo, Paris, Hong Kong, Shanghai, and a cruise line.

The company's products division licenses the company's horde of names, characters, and intellectual property to a wide range of products. They've also jumped into the online world with their Disney Interactive division. Last but not least is the Walt Disney Studios segment. Disney started making movies 90 years ago. Today their studio business includes Disney animation, Pixar Animation, Disneynature, Disney Studios Motion Pictures, Disney music group, Touchstone Pictures, and Marvel Studios.

Their movie business has been a money maker over the years with huge hits like the Pirates of the Caribbean franchise, Tangled, Wreck-it Ralph. Last year they released the animated film "Frozen", which has turned into the largest grossing animated movie of all time. Pixar has a stable of successful movies that have grossed almost $9 billion. DIS is also mining gold in Marvel Entertainment's library of over 8,000 characters of comic book history. Marvel had two big hits this year Captain America: Winter Soldier and Guardians of the Galaxy.

Back in 2012 Disney purchased Lucasfilm and all the Star Wars properties from George Lucas for $4 billion. The company is busy filming the next three episodes of the Star Wars franchise. This weekend DIS released the teaser trailer for episode 7, The Force Awakens. It has been shocking to see just how much hype and buzz this teaser has generated. There are stories and links to this trailer just about everywhere you go on the Internet this weekend. It has reawakened fan interest in the Star Wars story and DIS has a whole year to feed the hype until episode seven's release in December 2015. Analysts are already predicting that "The Force Awakens" will generate $1.2 billion at the global box office.

I expanded on the movie business above because it was Disney's studio segment that really drove earnings last quarter. DIS has been beating Wall Street's estimates on both the top and bottom line four quarters in a row. The most recent earnings report was November 6th (DIS' Q4). Analysts were expecting a profit of $0.88 a share on revenues of $12.37 billion. DIS reported $0.89 a share with revenues rising +7.1% to $12.39 billion. The movie division saw its quarterly revenues soar +18% to $1.8 billion. Altogether the company reported record-breaking revenues for all five businesses in 2014.

The correction in DIS' stock from the September highs to the October lows was painful but shares have come roaring back. Now after consolidating sideways between $88.75 and $92.00 this last month the stock is rested and ready to run. The breakout past resistance at $92.00 looks like an entry point to buy calls.

I suspect the $100.00 level could be round-number, psychological resistance but the point & figure chart is very bullish and forecasting a long-term $119.00 target. Tonight we are suggesting traders buy calls on Monday morning at the opening bell.

FYI: If you haven't seen the trailer yet you can view the teaser for
Star Wars: The Force Awakens (episode 7) on youtube right here.

*Buy calls Monday morning*

- Suggested Positions -

Buy the 2015 Feb $95 call (DIS150220C95) current ask $1.82

Option Format: symbol-year-month-day-call-strike

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Six Weeks In A Row

by James Brown

Click here to email James Brown

Editor's Note:

The S&P 500 index just posted its sixth weekly gain in a row. Big cap stocks continue to lead the market.

Friday was generally positive for most of our active plays. We did remove GBX following its relative weakness. The GBX trade wasn't open yet. URI reversed lower and hit our stop loss.

Speaking of stops, tonight we have updated several stop losses.


Current Portfolio:


CALL Play Updates

Apple Inc. - AAPL - close: 118.93 change: -0.07

Stop Loss: 115.85
Target(s): To Be Determined
Current Option Gain/Loss: +159.0%
Average Daily Volume = 55.5 million
Entry on November 12 at $110.25
Listed on November 08, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
11/29/14: Shares of AAPL spent the short Friday session consolidating sideways. We suspect the stock is poised to breakout past resistance at $120 soon.

Currently our stop loss is at $115.85. More conservative investors may want to adjust their stop closer to the 10-dma, near $116.50, instead.

Earlier Comments: November 8, 2014:
Love it or hate it AAPL always has Wall Street's attention. It has a cult-like following. The company's success has turned AAPL's stock into the biggest big cap in the U.S. markets with a current valuation of almost $640 billion.

The company is involved in multiple industries from hardware, software, and media but it's best known for its consumer electronics. The iPod helped perpetuate the digital music revolution. The iPhone, according to AAPL, is the best smartphone in the world. The iPad helped bring the tablet PC to the mass market. The company makes waves in every industry they touch with a very distinctive brand (iOS, iWork, iLife, iMessage, iCloud, iTunes, etc.) and they've done an amazing job at building an Apple-branded ecosystem. Now they're getting into the electronic payments business with Apple Pay.

The company's latest earnings report was super strong. AAPL reported its Q4 (calendar Q3) results on October 20th. Wall Street was expecting a profit of $1.31 a share on revenues of $39.84 billion. The company delivered a profit of $1.42 a share with revenues up +12.4% to $42.12 billion. The EPS number was a +20% improvement from a year ago. Gross margins were up +1% from a year ago to 38%. International sales were 60% of the company's revenues.

AAPL's iPhone sales exceeded estimates at 39.27 million in the quarter and up nearly 16% from a year ago. The only soft spot in their ecosystem seems to be iPad sales, which have declined several quarters in a row. The company hopes to rejuvenate its tablet sales with a refresh of the iPad models. More importantly AAPL management raised their Q1 (calendar Q4) guidance as they expect revenues in the $63.5-66.5 billion in the quarter. Recent news would suggest that AAPL might deliver an incredible 50 million iPhone 6s in 2014. That's not counting their new iPhone 6+.

The better than expected results and bullish guidance sent the stock to new highs. The rally has created a quadruple top breakout buy signal on its point & figure chart that is currently forecasting at $135 target. Shares have been outperforming the broader market and AAPL is currently up +36% year to date.

Currently AAPL is up three weeks in a row but it spent most of last week consolidating sideways and digesting its prior gains. As we approach the holiday shopping season AAPL is poised to benefit from what should be stronger than average consumer spending with the company's stable of new releases to tempt consumers to upgrade their older electronics.

The daily chart shows AAPL's intraday high to be $110.30 on November 3rd but that's actually a bad tick. The real intraday high is about $109.90. Tonight I am suggesting a trigger to buy calls on AAPL at $110.25. We will start with a stop loss at $106.45. More conservative traders may want to try a stop loss closer to last week's low near $107.70 instead.

- Suggested Positions -

Long 2015 Jan $110 call (AAPL150117c110) entry $3.90

11/25/14 new stop @ 115.85
11/22/14 new stop @ 113.25
11/12/14 triggered @ 110.25
Option Format: symbol-year-month-day-call-strike

chart:


CR Bard Inc. - BCR - close: 167.35 change: +0.18

Stop Loss: 163.35
Target(s): To Be Determined
Current Option Gain/Loss: - 1.1%
Average Daily Volume = 538 thousand
Entry on November 13 at $165.65
Listed on November 12, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
11/29/14: BCR spiked higher on Friday morning. The rally failed near the prior Friday's high. It would appear that the $169-170 zone is new overhead resistance.

Readers may want to raise their stop again. I am not suggesting new positions at this time.

Earlier Comments: November 12, 2014:
BCR is in the healthcare sector. The company makes medical supplies. According to the company website, "C. R. Bard, Inc. is a leading multinational developer, manufacturer, and marketer of innovative, life-enhancing medical technologies in the product fields of vascular, urology, oncology, and surgical specialty. BARD markets its products and services worldwide to hospitals, individual health care professionals, extended care facilities, and alternate site facilities."

The company has been on a roll with its earnings reports. BCR has beaten Wall Street's estimates on both the top and bottom line the last four quarters in a row. The last couple of quarters have seen some pretty big beats and management has raised guidance.

BCR's most recent earnings report was October 22nd. Wall Street expected a profit of $1.87 a share on revenues of $818.8 million. BCR said earnings rose +28% from a year ago to $2.15 a share. Revenues were up +9% to $830 million. Inside the U.S. net sales were up +13%. Management raised their Q4 EPS guidance above analysts' estimates.

The stock has been struggling to breakout past major resistance near the $150-155 range but the October earnings results launched shares of BCR higher. The last couple of weeks have seen BCR consolidating sideways under resistance near the $165.00 level. We think it's about to break out. The point & figure chart is bullish and forecasting at long-term target of $194.00.

Tonight we are suggesting a trigger to buy calls at $165.60

- Suggested Positions -

Long 2015 Jan $170 call (BCR150117c170) entry $2.63

11/22/14 new stop @ 163.35
11/13/14 triggered @ 165.65, suggested entry was $165.60
Option Format: symbol-year-month-day-call-strike

chart:


Costco Wholesale - COST - close: 142.12 change: +2.37

Stop Loss: 138.65
Target(s): To Be Determined
Current Option Gain/Loss: +374.0%
Average Daily Volume = 1.9 million
Entry on October 30 at $132.25
Listed on October 29, 2014
Time Frame: Exit prior to earnings in December 10th
New Positions: see below

Comments:
11/29/14: Some of the retail names shot higher on Friday. COST soared +1.7% to close at another new high. This is the sixth weekly gain in a row.

Tonight we are raising the stop loss to $138.65. I am not suggesting new positions at this time.

NOTE: COST is scheduled to report earnings on December 10th. We will most likely exit prior to the announcement.

Earlier Comments: October 29, 2014
COST is part of the services sector. The company runs a discount, membership sales warehouse. The company's latest earnings report said Costco currently operates 664 warehouses, including 469 in the United States and Puerto Rico, 88 in Canada, 33 in Mexico, 26 in the United Kingdom, 20 in Japan, 11 in Korea, 10 in Taiwan, six in Australia and one in Spain.

The company has struggled to hit Wall Street's bottom line estimates for over a year but steady improvement in their same-store sales have helped drive the stock higher. A strong back to school shopping season and higher membership fees fueled a better than expected quarterly report.

COST reported their Q4 numbers on October 8th. After missing estimates for five quarters in a row the company finally beat estimates. Analysts were expecting a profit of $1.52 a share on revenues of $35.3 billion. COST delivered $1.58 a share with revenues up +9.3% to $35.52 billion. The net profit number was up +13% and gross margins improved 15 basis points.

COST also reported that their e-commerce sales continue to grow at a brisk pace and their online sales rose +18% in their fourth quarter. Same-store (comparable store) sales remain a key metric to watch. COST's Q4 same-store sales were up +4% yet if you back out falling gasoline prices and currency effects their comparable store sales were up +6% for the quarter versus +4.5% a year ago. Membership renewal rates remain very strong at 91% in the U.S. and 87% globally. COST plans to open up to eight more locations before the end of the 2014 calendar year.

The company also recently announced their first foray into China. COST has entered the Chinese market with an online store through Alibaba Group's (BABA) Tmall Global platform.

The holiday shopping season is almost upon us with less than 60 days before Christmas. COST is poised to do well since the company caters to the higher-end more affluent customer.

Shares are hovering just below the $132.00 level. Tonight we are suggesting at trigger to buy calls at $132.25. We will plan on exiting positions prior to their December earnings report.

- Suggested Positions -

Long DEC $135 call (COST141220c135) entry $1.54

11/29/14 new stop @ 138.65
11/25/14 Caution: investors may want to take profits now
11/22/14 new stop @ 137.25
11/08/14 new stop @ 134.75
11/01/14 new stop @ 130.75
10/30/14 triggered @ 132.25
Option Format: symbol-year-month-day-call-strike

chart:


Deckers Outdoor Corp. - DECK - close: 96.72 change: +0.47

Stop Loss: 93.65
Target(s): To Be Determined
Current Option Gain/Loss: +31.6%
Average Daily Volume = 763 thousand
Entry on November 17 at $92.25
Listed on November 15, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
11/29/14: DECK continued to step higher on Friday and notched its fifth weekly gain in a row. The stock is nearing what is likely resistance in the $99.50-100.00 area. Tonight we will move the stop loss up to $93.65.

I am not suggesting new positions at this time.

Earlier Comments: November 15, 2014:
DECK is part of the consumer goods sector. The company owns a number of brands but for many Deckers means UGG. The iconic footwear line was started in 1978 in Southern California. Strength in the UGG line helped power the company's latest quarterly results.

According to the company website, "Deckers Brands is a global leader in designing, marketing and distributing innovative footwear, apparel and accessories developed for both everyday casual lifestyle use and high performance activities. The Company's portfolio of brands includes UGG, I HEART UGG, Teva, Sanuk, TSUBO, Ahnu, MOZO, and HOKA ONE ONE. Deckers Brands products are sold in more than 50 countries and territories through select department and specialty stores, 130 Company-owned and operated retail stores, and select online stores, including Company-owned websites. Deckers Brands has a 40-year history of building niche footwear brands into lifestyle market leaders attracting millions of loyal consumers globally."

The most recent earnings report was October 23rd. Analysts were expecting a profit of $1.03 per share on revenues of $457.2 million. DECK beat estimates with a profit of $1.17 a share. That's a +23.2% increase from the same period a year ago. Revenues soared +24.2% to a record $480.3 million. U.S. sales rose +21.1% and international sales surged +29.2%. E-commerce sales soared +45%.

It was DECK's Q2 and their gross profit rose +34% while gross margins increased 340 basis points to 46.6%. This was above estimates of 45% and above their gross margin a year ago of 43.2%. Management said all brands delivered a strong performance.

The company lowered their Q3 guidance (current quarter) to below Wall Street estimates. They also raised their Q4 and 2015 guidance on both the top and bottom line. DECK expects 2015 to see revenues up +15%, earnings up +15.8%, and gross margins around 49%. Last quarter the S&P 500 saw earnings growth of about +6.9%. DECK is clearly outgrowing the market with +23% growth. The S&P 500 is expected to see +10-11% growth in 2015.

Technically shares are poised for a breakout on both the daily chart and the point & figure chart. Looking at the point & figure chart (not shown), a breakout past $92.00 would generate a new triple-top breakout buy signal. A breakout could also spark some short covering. The most recent data listed short interest at 17% of the small 33.6 million share float.

Tonight we are suggesting a trigger to buy calls at $92.25. Such a move probably signals a run toward resistance near $100.00.

- Suggested Positions -

Long 2015 Jan $95 call (DECK150117c95) entry $3.80

11/29/14 new stop @ 93.65
11/22/14 new stop @ 89.75
11/17/14 triggered $92.25
Option Format: symbol-year-month-day-call-strike

chart:


DineEquity, Inc. - DIN - close: 99.33 change: +2.03

Stop Loss: 96.85
Target(s): To Be Determined
Current Option Gain/Loss: +208.3%
Average Daily Volume = 154 thousand
Entry on November 05 at $91.55
Listed on November 04, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
11/29/14: DIN continued to show relative strength on Friday with a +2.0% surge to new highs. The stock has essentially tested the $100 level, which has the potential to be tough, round-number, psychological resistance.

I am suggesting more conservative traders immediately exit to book profits. The newsletter will officially keep the trade open and move the stop loss up to $96.85.

I'm not suggesting new positions at the moment.

Earlier Comments: November 4, 2014:
Restaurant stocks were showing relative strength today. Better than expected earnings results from the likes of Red Robin (RRGB) and Bloomin Brands (BLMN) helped buoy the group. Additional stocks in this industry showing relative strength on Tuesday are: BWLD, PNRA, JACK, EAT, SONC, TXRH, KKD, DNKN, CAKE, DRI, and PBP. The one we like tonight is DIN.

According to a company press release, "Based in Glendale, California, DineEquity, Inc., through its subsidiaries, franchises and operates restaurants under the Applebee's Neighborhood Grill & Bar and IHOP brands. With more than 3,600 restaurants combined in 19 countries, over 400 franchisees and approximately 200,000 team members (including franchisee- and company-operated restaurant employees), DineEquity is one of the largest full-service restaurant companies in the world."

The company has seen success with a steady improvement in earnings. DIN has beaten Wall Street's estimates on both the top and bottom line three quarters in a row. Their most recent report was October 28th. Analysts were looking for a profit of $1.05 a share on revenues of $157.2 million. DIN served up $1.14 per share with revenues climbing to $162.85 million.

The company saw domestic system-wide same-store sales up +2.4% at IHOP and +1.7% at Applebee's. Management then raised their sales guidance on both Applebee's and IHOP. DIN also raised its dividend by 17% to $0.875 per share and they boosted their stock buyback program from $40 million to $100 million.

The restaurant industry should be a major beneficiary of the drop in oil prices. Lower gasoline prices at the pump mean consumers have more spending money and will likely burn a lot of that cash eating at restaurants.

Shares broke out to new highs on this earnings report and bullish guidance. Today the stock is at all-time highs. The point & figure chart is bullish and forecasting a long-term target at $118.00.

Tonight we are suggesting a trigger to launch bullish positions at $91.55.

- Suggested Positions -

Long DEC $95 call (DIN141220c95) entry $1.20

11/29/14 new stop @ 96.85
11/26/14 new stop @ 94.85, traders may want to take profits here!
11/22/14 new stop @ 93.85
11/19/14 new stop @ 92.75
11/13/14 new stop @ 92.25
11/12/14 new stop @ 91.45
11/08/14 new stop @ 89.65
11/05/14 triggered @ 91.55
Option Format: symbol-year-month-day-call-strike

chart:


FedEx Corp. - FDX - close: 178.18 change: +3.10

Stop Loss: 174.25
Target(s): To Be Determined
Current Option Gain/Loss: +248.1%
Average Daily Volume = 1.5 million
Entry on October 17 at $155.50
Listed on October 15, 2014
Time Frame: Probably exit prior to earnings on Dec. 17th
New Positions: see below

Comments:
11/29/14: Transportation stocks soared as crude oil prices plunged on Friday following the OPEC meeting. Shares of FDX gapped open higher and almost hit $180 before paring its gains.

The stock is very overbought with FDX up seven weeks in a row. Investors may want to just take profits now. Tonight we are moving the stop loss up to $174.25.

I am not suggesting new positions at this time.

Earlier Comments: October 15, 2014:
Last year a last minute surge of online shoppers overwhelmed the system and thousands of Christmas presents were delivered late. Part of the problem was terrible weather. The other challenge was the growth in online shopping. Amazon.com (AMZN) blamed UPS for the mass of delayed deliveries last year. You can bet that UPS' rival FDX has taken notice and plans to be ready this year.

Market research firm EMarketer is estimating that retail online shopping will surge +17% in 2014 to $72.4 billion. That might be under estimating the growth, especially this year as many consumers might opt to shop online instead of face the crowds and risk being a target for terrorism or catching Ebola. Granted neither a terrorist event inside the U.S. and a widespread outbreak of Ebola in the states has happened yet but people are already afraid with the daily headlines about the virus.

UPS and FDX hope to be ready. UPS is hiring up to 95,000 seasonal workers and FDX is hiring 50,000 holiday workers this year. That's 10K more than last year for FDX.

In addition to the surge in online shopping FDX should also benefit from the multi-year lows in oil prices. Low oil prices means lower fuel costs, one of FDX's biggest expenses.

It would appear that FDX has fine tuned its earnings machine as well. Their latest earnings report was September 17th. Wall Street was expecting a profit of $1.95 a share on revenues of $11.46 billion. FDX delivered a profit of $2.10 a share with revenues up to $11.7 billion. That's a +24% increase in earnings from a year ago and the second quarter in a row that FDX beat EPS estimates.

FDX chairman, president, and CEO Frederick Smith said, "FedEx Corp. is off to an outstanding start in fiscal 2015, thanks to very strong performance at FedEx Ground, solid volume and revenue increases at FedEx Freight and healthy growth in U.S. domestic volume at FedEx Express." Business has been strong enough that a few weeks ago FDX started raising prices on some services.

Since that September earnings report Wall Street analysts have been raising price targets. Some of the new price targets for FDX stock are $175, $180 and $183 a share.

The recent sell-off in the market and FDX could be an opportunity. FDX has already seen a -10% correction from its intraday high near $165 to today's low near $149. Right now FDX sits just below resistance near $155.

We're suggesting a trigger to buy calls at $155.50.

- Suggested Positions -

Long 2015 Jan $160 call (FDX150117c160) entry $5.30

11/29/14 new stop @ 174.25
11/17/14 new stop @ 169.85
11/15/14 new stop @ 168.40
11/08/14 new stop @ 165.50
11/01/14 new stop @ 163.45
10/28/14 new stop @ 162.65, traders may want to take profits now!
10/25/14 new stop @ 157.85
10/23/14 new stop @ 155.90
FDX is nearing resistance at $164.00. Traders may want to take profits now.
10/21/14 new stop @ 153.45
10/17/14 triggered @ 155.50
Option Format: symbol-year-month-day-call-strike

chart:


The Hain Celestial Group, Inc. - HAIN - close: 113.22 change: +0.63

Stop Loss: 109.85
Target(s): To Be Determined
Current Option Gain/Loss: +52.8%
Average Daily Volume = 615 thousand
Entry on November 26 at $110.25
Listed on November 25, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
11/29/14: HAIN rallied up toward $115 on Friday before trimming its gains. The stock is up sharply in the last three days. I would expect a dip on Monday. Broken resistance near $110 should offer some support. Tonight we are raising the stop loss to $109.85. I am not suggesting new positions at this time.

Earlier Comments: November 25, 2014:
"Our business continues to benefit from strong growth trends in the organic and natural, better-for-you segment of consumer packaged goods."

That quote is from HAIN's CEO after the company reported its latest earnings results in early November. He's right. Consumers are choosing healthier foods and it looks like a major trend change that could benefit HAIN for a long time.

The company website describes HAIN as, "The Hain Celestial Group, headquartered in Lake Success, NY, is a leading natural and organic food and personal care products company in North America and Europe. Hain Celestial participates in almost all natural food categories with well-known brands that include Celestial Seasonings, Terra, Garden of Eatin', Health Valley, WestSoy, Earth's Best, Arrowhead Mills, DeBoles, Hain Pure Foods, FreeBird, Hollywood, Spectrum Naturals, Spectrum Essentials, Walnut Acres Organic, Imagine Foods, Rice Dream, Soy Dream, Rosetto, Ethnic Gourmet, Yves Veggie Cuisine, Linda McCartney, Realeat, Lima, Grains Noirs, Natumi, JASON, Zia Natural Skincare, Avalon Organics, Alba Botanica and Queen Helene."

HAIN's results have definitely confirmed the trend in consumer spending. They have beaten Wall Street's estimates and guided higher in three out of the last four earnings reports.

The Q4 report in late August this year saw revenues up +26% to $583.8 million. Management raised their guidance as they now expect sales growth of +27% to +30% in 2015.

The company reported their 2015 Q1 numbers on November 6th and sales are accelerating. Wall Street was expecting a profit of $0.67 on revenues of $640.27 million. HAIN delivered a profit of $0.68, which is a +31% increase from a year ago. Revenues were up +34.6% to $642.6 million. These are really impressive results when you consider that includes a voluntary recall of their HAIN nut butters back in August.

Commenting on their Q1 results, Irwin Simon, Founder, President, and CEO of the company said, "We are pleased with another strong start to our fiscal year across all of our segments on a worldwide basis with the highest quarterly net sales in the Company's history."

"Our diverse portfolio of brands and products across multiple categories and our customer base across various channels of distribution enabled us to deliver double-digit sales growth even with the impact of the nut-butter recall initiated in August."

Accompanying these results their Board of Directors also approved a 2-for-1 stock split but shareholders needed to approve an increase in the number of shares outstanding first. The company's annual meeting was a few days ago and shareholders did approve the stock split. That headline came out tonight, after the closing bell.

The 2-for-1 stock split will occur in December. The shareholder record date is December 12th, 2014. The ex-dividend date is expected to be December 29th (this is when HAIN will begin trading post-split).

Shares of HAIN have been consolidating sideways beneath resistance at $110 for the last three weeks. The stock displayed relative strength today and looks poised to breakout past this resistance. The 2-for-1 stock split news could be the catalyst it needed. After hours tonight shares are trading around $110.50. We are expecting HAIN to gap open higher tomorrow morning. I'm suggesting a trigger to buy calls on HAIN if shares trade at $110.25 or higher.

We are not setting an exit target tonight but I will point out that the point & figure chart is bullish and forecasting a long-term $131.00 target.

- Suggested Positions -

Long 2015 Jan $115 call (HAIN150117c115) entry $1.80

11/29/14 new stop @ 109.85
11/26/14 triggered @ $110.25
Option Format: symbol-year-month-day-call-strike

chart:


Northrop Grumman - NOC - close: 140.93 change: -0.52

Stop Loss: 138.65
Target(s): To Be Determined
Current Option Gain/Loss: + 6.7%
Average Daily Volume = 1.0 million
Entry on November 21 at $140.25
Listed on November 20, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
11/29/14: NOC ran into a tiny bit of profit taking on Friday. Shares briefly traded to a new high but the rally essentially stalled near Tuesday's high. NOC closed with a -0.3% decline.

Tonight we are raising the stop loss to $138.65. I am not suggesting new positions at the moment but nimble traders could use a dip or a bounce near $140.00 as another entry point.

Earlier Comments: November 20, 2014:
One might have assumed that when Washington politics cut $500 billion from the U.S. defense budget over the 2012-2021 time frame it would have been bearish for defense sector stocks. Yet the group has been an outperformer in the stock market and delivered amazing gains last year. The defense-related juggernauts like NOC continue to perform well in 2014. This stock is currently up +20% in 2014 versus a +10.8% gain in the S&P 500.

According to their company website, "Northrop Grumman is a leading global security company providing innovative systems, products and solutions in unmanned systems, cyber, C4ISR, and logistics and modernization to government and commercial customers worldwide." What does that mean? It means NOC makes bombers, unmanned drones, cyber security solutions, and logistics. If you're curious, C4ISR stands for command, control, communications, computers, intelligence, surveillance, and reconnaissance.

The fact that the world seems to be growing more dangerous, not less dangerous, should be a bullish undercurrent that lifts the defense sector. NOC should benefit because the American public does not have the stomach for another war. That means the U.S. will use more and more unmanned technology like NOC's drones.

The company has been performing well this year and NOC has raised guidance the last four quarters in a row. They reported their Q3 results on October 22nd. It was NOC's eight consecutive quarter in a row of earnings growth. Wall Street was looking for a profit of $2.14 a share on revenues of $5.9 billion. NOC delivered $2.26 a share. That's up +6% from a year ago. Revenues beat estimates at $5.98 billion.

NOC management has been trying to diversify their customer base and international sales are expected to hit 13% of total revenue in 2014 compared to 10% last year. NOC's Q3 saw its total backlog soar +8% to $38.5 billion from the prior quarter.

Once again management has raised their guidance. NOC expects 2014 earnings in the $9.40-9.50 zone compared to prior guidance of $9.15-9.35. Wall Street was estimating $9.35.

Shares of NOC have spent the last three weeks consolidating gains in the $135-140 zone. The point & figure chart remains bullish and is forecasting at $158.00 target. Given the stock's bullish trend of higher lows NOC could see a breakout soon.

Tonight I am suggesting a trigger to buy calls at $140.25.

- Suggested Positions -

Long 2015 Jan $145 call (NOC150117c145) entry $1.50

11/29/14 new stop @ 138.65
11/21/14 triggered @ 140.25
Option Format: symbol-year-month-day-call-strike

chart:


NXP Semiconductors - NXPI - close: 77.81 change: -0.04

Stop Loss: 74.85
Target(s): To Be Determined
Current Option Gain/Loss: +10.9%
Average Daily Volume = 3.9 million
Entry on November 24 at $76.05
Listed on November 22, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
11/29/14: In the original NXPI play description I cautioned readers that this was a more aggressive trade because the stock is near a trend line of higher highs. Shares came close to testing that trend line on Friday before closing virtually unchanged (see chart below).

I am not suggesting new positions at the moment. We will raise the stop loss to $74.85.

Earlier Comments: November 22, 2014:
NXPI is in the technology sector. The company classified as part of the semiconductor industry but they make a host of electronic parts and components. The company describes itself on their website as follows, "The electronics industry is being driven by four mega trends that are helping shape our society: Energy Efficiency, Connected Devices, Security and Health. Connecting to these trends and enabling Secure Connections for a Smarter World, NXP Semiconductors N.V. (NASDAQ: NXPI) creates solutions for the Connected Car, Cyber Security, Portable & Wearable and the Internet of Things. Through our innovations, customers across a wide variety of industries – including automotive, security, connected devices, lighting, industrial and infrastructure – are able to differentiate their products through features, cost of ownership and/or time-to-market."

The company has seen a dramatic turnaround. NXPI was born in 2006 when Phillips Electronics sold its semiconductor business to private equity firms. By 2009 they were $6 billion in debt and losing money. Today they have cut their debt in half.

Investors business daily noted that companies like NXPI and its rival AVGO, another bullish looking stock, should both benefit thanks to a new trade deal with China. The U.S. and China have recently decided to remove some tariffs on almost $1 trillion worth of high-tech products.

As we approach the holidays shares of NXPI could get a boost thanks to Apple (AAPL). Investors expect AAPL to see a very strong fourth quarter with its new iPhone 6 and 6+ and AAPL is trying to revive its tablet business with a refresh of its iPad models. NXPI provides components to the iPhone, the iPad, and is rumored to produce equipment for AAPL's new Apple Pay technology.

NXPI's revenues have been strong all year. The company has actually beaten Wall Street's earnings estimates on both the top and bottom line the last four quarters in a row. Revenues were up +15.9%, +14.8%, +17.3% and in the most recent quarter +21.3%. NXPI's last earnings report was October 23rd. The company reported a profit of $1.35 a share, which was four cents above estimates. Revenues came in at $1.51 billion. Management issued bullish guidance on its Q4 EPS number while its revenue estimate was only in-line with Wall Street.

The stock received several price target upgrades in November. Recently as mutual funds issued their 13F filings it was unveiled that Appaloosa Management, the fund run by influential manager David Tepper, had initiated a new position in NXPI last quarter.

Technically shares of NXPI have been digesting gains in a sideways consolidation the last couple of weeks. Shares managed to end the week at a new all-time high. There looks like short-term resistance at $76.00. Tonight I'm suggesting a trigger at $76.05.

Please note this is a slightly more aggressive trade as NXPI appears to have potential resistance at a trend line of higher highs (see chart).

- Suggested Positions -

Long 2015 Jan $80 call (NXPI150117c80) entry $2.39

11/29/14 new stop @ 74.85
11/24/14 triggered @ 76.05
Option Format: symbol-year-month-day-call-strike

chart:


PriceSmart Inc. - PSMT - close: 96.96 change: +1.39

Stop Loss: 92.85
Target(s): To Be Determined
Current Option Gain/Loss: +36.6%
Average Daily Volume = 156 thousand
Entry on November 10 at $92.75
Listed on November 06, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
11/29/14: PSMT displayed some relative strength on Friday with a +1.45% gain. Shares tagged new seven month highs on both an intraday and closing basis. I don't see any changes from my prior comments. More conservative traders might want to raise their stop again.

I am not suggesting new positions at this time.

Earlier Comments: November 6, 2014:
PSMT is in the services sector. The company is essentially the Costco of Latin America. A company press release describes them this way, "PriceSmart, headquartered in San Diego, owns and operates U.S.-style membership shopping warehouse clubs in Latin America and the Caribbean, selling high quality merchandise at low prices to PriceSmart members. PriceSmart now operates 34 warehouse clubs in 12 countries and one U.S. territory (six in Costa Rica; four each in Panama, Trinidad, and Colombia; three each in Guatemala, the Dominican Republic, and Honduras; two in El Salvador; and one each in Aruba, Barbados, Jamaica, Nicaragua and the United States Virgin Islands)."

A lot of PSMT's locations are in fast growing countries. Honduras has an annual growth rate of +3.1%. Costa Rica's is +4.2%. Columbia & Guatemala are growing at +4.3%. Panama latest GDP was +6.3%. Yet a few countries are struggling. Trinidad's growth rate is -1.2% while the Dominican Republic's plunged to an annual pace of -13%. Overall the consolidate trend is positive for PSMT's environment and they're building new stores in Columbia.

The company's latest earnings report was mixed. Their 73-cent earnings missed estimates by one cent but revenues were up +6.3% for the year and above Wall Street's estimate. This was PSMT's fourth quarter and they ended their fiscal year with sales of $2.4 billion, a +9.2% increase. Overall same-store sales rose +4.8%. Management reported double-digit sales growth for the year in Columbia, Panama, Trinidad, and Aruba.

Technically the stock has been in a bear market after a sharp decline from its late 2013 highs near $125 a share. PSMT appears to have built a base in the $80-92 range over the last few months. Now shares are starting to breakout from this significant consolidation pattern. Today's rally is significant because it's a bullish breakout above technical resistance at the 200-dma. The point & figure chart is bullish and forecasting a target of $102.

The October 29th intraday high was $92.68. Tonight I am suggesting a trigger to buy calls at $92.75.

- Suggested Positions -

Long 2015 Jan $95 call (PSMT150117C95) entry $3.44

11/22/14 new stop @ 92.85
11/19/14 new stop @ 91.45
11/10/14 triggered @ 92.75
Option Format: symbol-year-month-day-call-strike

chart:


PowerShares QQQ (ETF) - QQQ - close: 106.01 change: +0.49

Stop Loss: 104.65
Target(s): To Be Determined
Current Option Gain/Loss: +143.0%
Average Daily Volume = 38.1 million
Entry on November 12 at $102.35
Listed on November 10, 2014
Time Frame: exit prior to December option expiration
New Positions: see below

Comments:
11/29/14: Big cap names in the NASDAQ continued to power higher on Friday with a +0.4% gain in the QQQ. This ETF looks overbought with a six-week rally. I would be tempted to take profits here. Tonight the newsletter is moving the stop loss to $104.65.

I am not suggesting new positions at this time.

Earlier Comments: November 10, 2014:
The QQQ is the exchange traded fund (ETF) that mimics the NASDAQ-100 index, which is the largest 100 non-financial stocks on the NASDAQ exchange, including both foreign and domestic companies.

The NASDAQ-100 has been outperforming its index brethren this year with the QQQ up +15.5% in 2014 compared to a +9.9% gain in the S&P 500, a +9.4% gain in the S&P 100, a +6.0% gain in the Dow Industrials, and a +0.8% gain in the Russell 2000.

This leadership should continue. Seasonally this is a very bullish time of year for stocks. November is the third best month of the year. We just started the best six months of the year. Midterm years perform even better than normal. Corporate earnings has been strong. Interest rates are low. The Fed remains cooperative. Japan's central bank just announced a massive new QE program that will send more money into U.S. stocks. Europe is on the verge of more QE. There are plenty of reasons to be bullish.

Most of the market does look short-term overbought with a massive bounce from the October 15th low. Yet the QQQ has spent the last several days consolidating gains in a sideways move under short-term resistance near the $102 area. That consolidation is narrowing and the Qs look poised to breakout higher.

Tonight we are suggesting a trigger to buy calls at $102.35.

- Suggested Positions -

Long DEC $102.63 CALL (QQQ141220C102.63) entry $1.49

11/29/14 new stop @ 104.65
11/22/14 new stop @ 102.45
11/12/14 triggered @ 102.35
Option Format: symbol-year-month-day-call-strike

chart:


The Sherwin-Williams Co. - SHW - close: 244.86 change: +4.26

Stop Loss: 238.25
Target(s): To Be Determined
Current Option Gain/Loss: +146.3%
Average Daily Volume = 526 thousand
Entry on November 05 at $231.00
Listed on November 01, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
11/29/14: It was an exciting day for SHW shareholders. The stock soared from about $240 to almost $250 before shares trimmed their gains. SHW still ended the day at a new closing high.

I don't see any changes from my prior comments. Traders will want to consider taking profits now.

I am not suggesting new positions at this time.

Earlier Comments: November 1, 2014:
It's not very often you see a company about to celebrate its 150th birthday. For SHW that will be the year 2016. The company has been in business since 1866. The Company's core business is the manufacture, distribution and sale of coatings and related products. SHW is headquartered in Cleveland, Ohio. They sell through over 4,100 company-operated stores. Their global group has sales in more than 115 countries. Sherwin-Williams is also a very well known dividend payer and has annually increased dividends since 1979.

The slow and steady economic improvement in the U.S. has been beneficial. The real estate market has also helped SHW. New homes need new paint. The pace of new home sales in the U.S. hit six-year highs last month. While home sales do tend to slow down a bit in the winter months SHW should benefit from lower input costs. Crude oil and natural gas are big components in the paint and coatings industry. The severe drop in oil the last few months is a blessing for SHW.

The company raised their earnings guidance back in July. They issued bullish guidance again in their latest quarterly report. SHW announced earnings on October 28th. Wall Street was expecting a profit of $3.22 per share on revenues of $3.18 billion. SHW said their earnings rose +31.4% to a record-setting $3.35 per share. Revenues were up +10.6% at $3.15 billion, which missed the estimate.

SHW's remodeling business saw growth. The real driver was paint sales. Their paint stores account for the lion's share of sales, which saw revenues up +20%. SHW also purchased 2.0 million shares of their stock last quarter and still have 6.8 million yet to buy in their stock buy back program.

Management was optimistic. SHW's Chairman and CEO MR. Christopher Connor, said,

"We are pleased to report record sales and earnings per share in the third quarter and first nine months of 2014 on the continued positive sales volume and strong operating results of our Paint Stores Group. The Paint Stores Group architectural volume growth was positive across all end market segments. The Comex acquisition continues to perform better than expected in the year. Our Consumer Group improved its operating results through higher volume sales and operating efficiencies. Our Global Finishes Group continues to improve its operating margins through improved operating efficiencies."

Management raised their 2014 EPS guidance above Wall Street's estimates. They also raised their revenue guidance but this was only in-line with consensus. SHW now expects Q4 sales in the +6% to +8% range. They expect earnings to be in the $1.30-1.40 range versus $1.14 in the fourth quarter of 2013.

The stock's relative strength has driven shares to new all-time highs and a +25% gain in 2014. The point & figure chart is bullish and forecasting at long-term target at $286.

Tonight we are suggesting a trigger to buy calls at $231.00.

- Suggested Positions -

Long 2015 Jan $240 call (SHW150117c240) entry $3.37

11/22/14 new stop @ 238.25
11/15/14 new stop @ 234.45
11/13/14 SHW is hitting potential resistance at $240. Traders may want to take profits now.
11/08/14 new stop @ 229.75
11/05/14 triggered @ 231.00
Option Format: symbol-year-month-day-call-strike

chart:


Semiconductor ETF - SMH - close: 55.55 change: +0.37

Stop Loss: 53.85
Target(s): To Be Determined
Current Option Gain/Loss: +363.6%
Average Daily Volume = 2.4 million
Entry on October 17 at $47.15
Listed on October 16, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
11/29/14: Semiconductor stocks have been very strong performers the last couple of weeks. The SMH continued to rise on Friday with a +0.6% gain. I would not chase it here. Tonight we're raising the stop loss to $53.85.

Earlier Comments: October 16, 2014:
It looks like the correction in the semiconductor stocks might be done.

The SMH is the Market Vectors Semiconductor Exchange Traded Fund (ETF) that tries to mimic the performance of the Market Vectors Semiconductor 25 index. Semiconductors as a group had been strong performers with the SMH up +73% from its late 2012 lows.

A few weeks ago the industry started to see some profit taking. MCHP issued an earnings warning last week that that sparked the massive plunge in the SMH. The SMH has witnessed a -15% correction from its 2014 closing high to the closing low on Monday this week. Now it has started to bounce. It's possible all the panic selling is over.

Intel (INTC), a much bigger company than MCHP, just reported earnings on October 14th and the results were better than Wall Street expected. More importantly INTC offered slightly bullish guidance.

Bloomberg noted that INTC said its PC-processor business rose +8.9% last quarter. Sales for INTC's chips for notebook computers soared +21%. Even chips for desktop PCs rose +6% in the third quarter.

The strong results from INTC have helped buoy the SMH, which is starting to rebound after testing (and piercing) long-term support on its weekly chart (shown below).

We suspect the worst might be over. However, this could be a volatile trade. There are a lot of semiconductor companies who have yet to report their results.

The SMH saw its rally stall under $47 and near its 200-dma. Tonight we are suggesting a trigger to buy calls at $47.15.

- Suggested Positions -

Long 2015 Jan $50 call (SMH150117c50) entry $1.10

11/29/14 new stop @ 53.85
11/22/14 new stop @ 52.25
11/20/14 new stop @ 51.40
11/12/14 new stop @ 50.85, readers may want to just take profits now!
11/01/14 new stop @ 48.85
10/25/14 new stop @ 47.85
10/21/14 new stop @ 46.35
10/17/14 triggered @ 47.15
Option Format: symbol-year-month-day-call-strike

chart:


Under Armour, Inc. - UA - close: 72.49 change: +1.01

Stop Loss: 67.90
Target(s): To Be Determined
Current Option Gain/Loss: + 6.2%
Average Daily Volume = 2.6 million
Entry on November 21 at $71.05
Listed on November 19, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
11/29/14: A lot of consumer-related stocks were showing strength on Friday thanks to mostly positive news on Black Friday sales and crowds. Shares of UA run higher. The stock is nearing potential resistance at its all-time high set in September this year near $72.75.

I am not suggesting new positions at this time.

Earlier Comments: November 19, 2014:
UA is in the consumer goods sector. "Under Armour, the originator of performance footwear, apparel and equipment, revolutionized how athletes across the world dress. Designed to make all athletes better, the brand's innovative products are sold worldwide to athletes at all levels. Under Armour's wholly owned subsidiary, MapMyFitness, powers one of the world's largest Connected Fitness communities. The Under Armour global headquarters is in Baltimore, Maryland." (source: company press release)

Apparel sales can be tricky as fashion fads come and go. Yet right now athletic wear has been gaining traction. Athletic wear sales are up +9% in the past year. Two giants in this industry, Nike (NKE) and Under Armour (UA), are outperforming the group.

NKE is the giant with annual sales of $28.8 billion. UA is a tenth the size of NKE at $2.87 billion a year in sales. It's not surprising to see UA outgrowing its rival. NKE managed +15% sales growth in the third quarter. UA delivered 30%. NKE reported gross margins of 46.6%. UA has gross margins of 49.6%. Both companies delivered earnings growth of more than 20% year over year.

UA is impressive because its apparel sales have been rising +30% for the last three quarters in a row. Apparel is important because it's 75% of UA's business. Currently UA only has 2% of the global athletic apparel market and many believe it has significant room to grow.

Investors were a little concerned when apparel sales only grew +25.6% in the third quarter. However, UA has been consistently beating Wall Street's earnings estimates on both the top and bottom line four quarters in a row. They have also raised guidance four quarters in a row.

Their most recent earnings report was October 23rd. UA delivered earnings of $0.41 a share with revenues up +29.7% to $937.9 million. Analysts were only expecting $0.40 on revenues of $925 million.

Management raised their Q4 guidance but they warned that growth would slow down to only +22% in 2015. It's worth noting that UA has a history of under promising and over delivering. The stock initially sold off on this guidance but investors quickly bought the dip. Shares of UA have broken through the two-month trend line of lower highs and technical resistance at the 50-dma. The point and figure chart is bullish and forecasting an $87 target.

The plunge in gasoline prices is a tailwind for retailers and it should be a strong holiday shopping season. Another bonus for UA could be the weather. Last year winter was colder than normal and UA had strong sales of their coldgear line. This year we could see the coldest winter in decades, which could also bode well for UA.

UA has spent the last few days consolidating sideways in the $68.00-70.00 range. Today saw UA showing relative strength (+1.6%) and breaking out past resistance at $70.00. The intraday high was $70.72. More aggressive traders may want to buy calls now. I am suggesting a trigger at $71.05 to buy calls.

- Suggested Positions -

Long 2015 Jan $75 call (UA150117c75) entry $1.60

11/21/14 trade opened on gap higher at $71.19
Option Format: symbol-year-month-day-call-strike

chart:




PUT Play Updates

FMC Corp. - FMC - close: 54.40 change: -1.29

Stop Loss: 55.85
Target(s): To Be Determined
Current Option Gain/Loss: -12.8%
Average Daily Volume = 1.42 million
Entry on November 04 at $55.85
Listed on November 03, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
11/29/14: Chemical stocks underperformed the market on Friday. FMC lost -2.3% marking its third loss in a row. We are adjusting the stop loss down to $55.85.

Earlier Comments: November 3, 2014:
FMC is in the basic materials sector. They are a diversified chemical company with agricultural chemicals, minerals, and health and nutrition businesses.

It has been a rough year for shareholders as FMC peaked in March this year and has been sliding lower every since. That's because the earnings picture has been deteriorating. You can see on the daily chart below where FMC issued an earnings warning in June. Then when they reported earnings in late July they missed estimates. It's not great when you warn about earnings and still miss Wall Street's lowered estimates.

FMC's most recent earnings report was October 29th. The company missed on both the top and bottom line. Analysts were expecting a profit of 96 cents a share on revenues of $1.06 billion. FMC only delivered 95 cents with revenues of $1.02 billion. The biggest part of their business, the Agricultural Solutions, which represents nearly half of FMC's sales, reported a small +2% revenue growth from a year ago.

In the company press release, Pierre Brondeau, FMC president, CEO and chairman, said: "In the third quarter, market dynamics continued to affect our portfolio. Agricultural markets were impacted by multiple factors around the world, a softening of demand in China affected parts of our Health and Nutrition portfolio, and Argentina continued to weigh on Lithium's results." Brondeau also noted they are concerned over some beverage products in China that have seen two quarters in a row of declining demand.

The weakness in shares of FMC have produced a -24% decline in 2014 versus the S&P 500's +10% gain. Meanwhile FMC's point & figure chart is suggesting the selling will continue and is pointing to a $25.00 target.

Tonight we are suggesting a trigger to buy puts at $55.85. More conservative investors might want to wait for a breakdown under $55.00 instead.

- Suggested Positions -

Long 2015 Jan $55 PUT (FMC150117P55) entry $1.95

11/29/14 new stop @ 55.85
11/22/14 new stop @ $57.35
11/04/14 triggered @ $55.85
Option Format: symbol-year-month-day-call-strike

chart:



CLOSED BULLISH PLAYS

The Greenbrier Companies - GBX - close: 55.48 change: -9.81

Stop Loss: 63.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 855 thousand
Entry on November -- at $---.--
Listed on November 22, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
11/29/14: Our GBX trade has not opened. We are removing it from the newsletter following Friday's relative weakness.

Anything related to railroads was hammered lower on Friday and GBX displayed significant weakness. The drop was a reaction to the OPEC meeting on Thursday. OPEC's decision to not cut production sparked another sharp sell-off in crude oil and natural gas.

Investors were speculating that plunging oil prices would reduce exploration and production of oil in the U.S. If oil production falls then demand to transport oil in the U.S. by railroad would also fall. Railroad stocks suffered a double whammy on Friday. Super low oil and natural gas prices would reduce the demand for coal. Railroads make a lot of money transporting coal. GBX suffers because less oil shipments might mean less demand for newer, safer oil tanker cars.

Trade did not open.

11/29/14 removed from the newsletter, suggested entry was $67.55.

chart:


United Rentals, Inc. - URI - close: 113.31 change: -5.39

Stop Loss: 112.25
Target(s): To Be Determined
Current Option Gain/Loss: -19.3%
Average Daily Volume = 1.6 million
Entry on November 03 at $110.55
Listed on November 01, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
11/29/14: That was a frustrating way to end the week if you were bullish on URI. I couldn't find any headlines to explain the $5.50 plunge in the first 30 minutes of trading. URI didn't actually hit our stop loss at $112.25 until later in the day. The sharp reversal under $120 now looks like a potential bearish double top with the earlier peak in September.

- Suggested Positions -

Long 2015 Jan $115 call (URI150117c115) entry $4.50 exit $3.63 (-19.3%)

11/28/14 stopped out @ 112.25
11/22/14 new stop @ 112.25
11/12/14 new stop @ 111.75
11/08/14 new stop @ 107.15
11/03/14 triggered @ 110.55
Option Format: symbol-year-month-day-call-strike

chart: