Option Investor
Newsletter

Daily Newsletter, Monday, 11/9/2015

Table of Contents

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

Market Wrap

Is The Rally Over?

by Thomas Hughes

Click here to email Thomas Hughes
Weak data from China, lowered GDP estimates, another new twist in the Greek bail-out plan, rate hike conjecture and diminished expectations for earnings weigh the market down.

Introduction

The bulls were not out today. Last week's better, much better, than expected NFP report has helped solidify December rate hike expectations and that, along with today's global headlines, pushed the indices lower.

Starting in Asia, weak Chinese trade data renewed fear of a slowing China economy but markets bucked sentiment in favor of other news. There are rumors that the Chinese IPO market would reopen soon, following a 4 month hiatus dating back to the summer swoon. Mainland indices, as well as the Japanese Nikkei, rose more than 1.5% while the Hong Kong index declined by -0.6%. European markets were more focused on the weak trade data, as well as a new development in the ever-present but often forgotten Greek bail-out deal. Greek creditors in the Eurozone have held off on an expected $2 billion payment due to a lack of compliance with some of the 50 reforms expected to have taken place by now. Indices across the region fell in the range of -1% to -2%.

Market Statistics

US stock futures were indicating a lower open all morning. Declines in the range of -0.25% to -0.5% were expected and that held through into the open. There was a little earnings activity in the ealry hours, and no economic data today at all, to help or hinder today's trading. The indices fell with the opening bell, as expected, and the decline continued throughout the morning, not reaching daily bottom until just after 12 noon.

Economic Calendar

The Economy

No official US economic data today and very little this weak compared to last. Tomorrow we will get the Wholesale Inventory data along with Import/Export prices. No data on Wednesday either, save for the weekly oil inventories reports. Thursday is weekly Jobless Claims, Treasury Budget and the JOLTs report on job openings and labor turnover. Friday wraps up the week with Business Inventories, Retail Sales, Michigan Sentiment and PPI. On a single release basis the PPI may be the biggest release of the week but retail sales, inventories and PPI will all carry some weight. Look out for signs of labor market health, strength/weakness in the consumer and indications/expectations for producer level inflation, all of which could affect the December rate hike outlook.

The OECD (Organization for Economic Cooperation and Development) lowered its outlook for 2015 global GDP to 2.9% in a presentation given earlier today. They expect to see global growth pick up in 2016 and 2017 to 3.6% and 3.9% but predicate that on a rebalancing of activity in China and increased investment in the developed world. GDP in the Eurozone is expected to strengthen in the next year while growth in China is expected to continue slowing, falling to 6.2% in 2017.

Moody's Survey Of Business Confidence fell again. This is the 10th week of decline. The reading for last week fell -0.9% to 34.4%, another new low. However, despite the drop, Moody's economist Mark Zandi says that business confidence is still high relative to historic levels. North American businesses have seen the most notable decline in sentiment, led by a decline in forward outlook.


According to Factset 444 of the 500 S&P 500 companies have reported earnings so far this season. The blended rate for earnings growth this season is now -2.2%, this is down a tenth from last week and counter to trend. Of those who have reported 74% have beaten on earnings estimates, above average, while only 46% have beaten on the revenue side, below average. Based on the long running trend in earnings we can still expect to see the blended rate rise another 0.5% to 1%, there are another 17 S&P companies reporting this week and another month before the last one reports.

Energy continues to be the laggard, posting a blended earnings decline of -56.6%. This is better than the -64% predicted at the start of the quarter with growth not expected to return in the sector until next year. Ex-energy the blended rate for this quarter is 4.5%, in line with expectations and will possibly go higher over the next few weeks.

Looking out to next quarter and next year. The 4th quarter is still estimated to post a decline, and that decline has grown. The projected rate of growth is now -3.7%, this is a decline of -1% from last week. Based on the long running average we can still expect to see this number come in flat to slightly positive by the end of the next reporting season, better than -3.7% but not great considering the fact that estimates have been steadily declining for the past month and more. Ex-energy 4th quarter earnins should be in the range of 2.1% to 6%.

Looking past next quarter to the first quarter of 2016 earnings growth is projected at 2.1%, revenue decline is still expected. Full year 2016 estimates are also falling, nearly a full percent in the last week, but still robust at 8.3%. Based on these estimates I think it safe to say we are still in an earnings trough and on the upslope but it may take yet another quarter for this scenario to play out. That being said, 4th quarter expectations could weigh on the market until revisions to estimates begin to increase rather than decrease.

The Oil Index

Oil prices fell today after briefly spiking in early trading. A statement from OPEC to the effect they were not going to cut production, and that they expected to see demand growth in 2016, was cause for the spike. The jump in price did not last as the weak Chinese data and current high levels of supply and production, along with OPEC's own pledge to keep production levels high, brought traders back to reality. WTI fell a little more than -0.6% to trade just above $44. Oil prices could continue to fall to retest the October low just below $43.

The Oil Index fell more than -1% in today's trade. The index is making a new one week low, below last weeks broken resistance, with increased chance for a return to support. The indicators remain consistent with my theory the index reached a peak with last week's false-break-out and are on the verge of rolling over into a bearish signal. Current downside target is near the short term moving average in the range of 1,150 and 1,175 with a possible break below that level should oil prices decline further.


The Gold Index

Gold prices held steady today, trading in a range of less than $5. Of course, prices held steady just above 3 month lows near $1090 following last week's impressive fall, driven by rate hike expectations and the wickedly surprising NFP report. The report, along with testimony from Janet Yellen and other economic data has strengthened the dollar as expected, sending the DXY to a 7 month high just below the historic high near $100. With rate hikes on the table, economic growth expected and still no obvious signs of inflation my outlook for gold remains bearish and will likely remain so as long as data points to rate hikes, economic growth and stronger dollar. Support is near $1075 but a break below this level could see it move significantly lower, and fast.

The gold miners also held fairly steady in today's action. The Gold Miners ETF GDX gained just over 2.25% after testing a new one month low, the candle however represents sideways movemet in the market more so than it does a real gain. The indicators remain bearish and weak, with downside momentum rising and at the strongest levels since last March. Current downside target is $13 with chance for a break below this level should support be broken.


In The News, Story Stocks and Earnings

There were quite a few earnings reports today but M&A activity overshadowed them. One of the earliest reported buy-outs was Weyerhausers deal to merge with Plum Creek Timber. Plum Creek shareholders will receive shares of the new company, retaining the Weyerhauser name, at the rate of 1.6 for each share of Plum Creek. The deal will create a combined company worth more than $23 billion and the largest privat holder of timberland in NA. Shares of Weyerhauser fell nearly -6% at the open and closed with a loss of -3% on the news while those of Plum Creek jumped nearly 18%.


Shares of Norfolk Southern were halted for a brief time in today's session following word of a takeover bid from Canadian Pacific. There has been no official word from either company at this time but shares of both stocks surged on the rumor. CP did release a statement saying there was no material news at this time and that they don't comment on rumors. Shares of CP gained about 5% shares of NSC gained about 10%.


Shares of Dean Foods, leading processor of milk and dairy products, surged in early morning trading after reporting earnings that beat estimates. The company reported adjusted earnings of $0.30, reversing a loss in the year ago period, and raised guidance for the next quarter. The stock opened with a gain near 5% and traded higher from there, closing with a gain near 7.5%. The stock is now trading near the top of its 12 month range but remains down nearly -80% from its all time high, set in 2007.


Priceline reported earnings in the pre-opening session as well but did not impress investors. The company reported a 7% gain in bookings with a 12% gain in profits but still fell short of consensus and lowered guidance for the next quarter. The company posted substantial gains in international business but was hurt by strong dollar exhange rates. Shares fell nearly -10% during the sesssion resulting in a loss of nearly $140 from the all-time high, set last week.


The Indices

The market sold off today. Rate hike fears may have been the cause but with so many other things for traders to focus on today it is hard to say. Regardless the reason the decline was led by the NASDAQ Composite which closed with a loss just over -1%. The tech heavy index set a new one week low in today's session but did not cross below the 5,050 support line (the 2,000 all time high). The indicators remain bullish although momentum is rapidly declining and stochastic is showing some near term weakness. The index could pull back to the 5,050 level over the next few days with a chance of breaking it and moving down to the short term moving average near the 5,000 level.


The second largest declining index in today's session was the Dow Jones Industrial Average which lost exactly -1%. The blue chips, as a group, were led lower by IBM which lost more than -2.10%, perhaps driven by Warren Buffet revelation Berkshire Hathaway has lost about $2 billion on its investment in the company. Whatever the spark, the blue chips fell and are approaching a near term support target near the 17,600 level. The indicators remain bullish, but like the NASDAQ Composite show declining momentum and near term weakness. The index could retreat the rest of the way to first support target with a chance of breaking through and moving down to the 17,500 level and the short term moving average. The short term trend is still up and the indicators show this most recent upswing in momentum is strong relative to the past 12 months so this dip appears to be another buying opportunity on the march to retest the all-time highs.


The S&P 500 made the third largest decline, just under -1.0% and coming to rest on the 2,075 suppot line. The support line was broken on an intraday basis but late day buying helped to bring it back above. The indicators here are also showing near term weakness and rapidly declining momentum so further testing of support could happen. A move below the current level could take the index down to the 2,050 level and the short term moving average.


The Dow Jones Transportation Average made the smallest decline, only -0.32%, possibly supported by merger rumors between Norfolk Southern and Canadian Pacific. The transports remain the laggard in relation to the October/November rally, today's action testing resistance near 8,275. The indicators here are very non-commital. Momentum has been trending near 0 for the last week, stochastic is trending near the middle of the range, both showing an index actively traded without underlying direction. As of now it looks like the short term moving average is supporting the index and holding it up against my resistance line. A break of either of these lines could result in swift movement. Upside target is near 8,500, downside target is near 7,750. As I mentioned earlier, 4th quarter earnings expectations could weaken the index in the near to short term, with long term expectations for economic and earnings growth providing support.


It really should not be any suprise to see the indices selling off as they did today. The sell-off was sharp, but not overly strong, and is more likely than not profit taking following the 16% (SPX) rally we have seen since the end of September. Unless some other negative factor emerges I see this is yet another buyable dip and will be looking for signs of support throughout the week.

Earnings are likely not going to be a big catalyst this week, there are some big names but not many considering that more than 85% of the S&P and a comparable number of Dow stocks have already reported. What could impact this week's trading is economic data. We'll get more labor data as well as reads on inflation, the consumer and inventories, all of which tie into growth expectatoins, earnings expectations and Fed rate hikes. I remain a bull, closely watching my stop levels and looking to buy on the dip.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Shipments Rose +23% Last Quarter

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Align Technology - ALGN - close: 67.08 change: -0.09

Stop Loss: 64.45
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 496 thousand
Entry on November -- at $---.--
Listed on November 09, 2015
Time Frame: 6 to 8 weeks
New Positions: Yes, see below

Company Description

Trade Description:
A better than expected Q3 earnings report launched ALGN to new highs. Shares have managed to hold on to most of its gains.

ALGN is in the healthcare sector. According to the company, "Align Technology is the leader in modern clear aligner orthodontics that designs, manufactures and markets the Invisalign® system, which provides dental professionals with a range of treatment options for adults and teenagers. The Company also offers the iTero 3D digital scanning system and services for orthodontic and restorative dentistry. Align Technology was founded in March 1997 and received FDA clearance to market the Invisalign system in 1998. Visit www.aligntech.com for more information."

ALGN's guidance has been disappointing all year long. Prior to the company's Q3 earnings report on October 22nd, ALGN has lowered guidance three quarters in a row. That changed with their last report.

Wall Street was expecting ALGN to deliver earnings of $0.30 a share on revenues of $205 million. ALGN beat estimates with earnings of $0.34 a share. Revenues were up +9.4% to $$ 207.6 million. Their clear aligner shipments were up +23.3% worldwide. Their teenage clear aligner shipments rose +22.3%.

Joe Hogan, Align Technology President and CEO, commented on his company's quarterly results, "Q3 was another good quarter, with revenues and EPS above the high-end of our guidance. Our results were driven by strong Invisalign case volume, with growth across all customer channels and geographies, reflecting our highest year-over-year growth in North America in three years with continued strength coming from EMEA and APAC, expansion in low-stage product segment and seasonally strong uptake by teenage patients, which account for 75% of the Orthodontic market."

ALGN management then raised their guidance for Q4. They see earnings in the $0.50-0.53 range compared to analysts' estimates at $0.49. The company also raised their Q4 revenue forecast to $223-227.9 million.

The stock soared on this news from about $61 to nearly $68. Shares have spent the last couple of weeks digesting these gains. Now ALGN looks poised to breakout to new highs. The $65.00 level was major resistance and the breakout should signal a new leg higher. Tonight we are suggesting a trigger to buy calls at $68.55.

Trigger @ $68.55

- Suggested Positions -

Buy the JAN $70 CALL (ALGN160115C70) current ask $2.15
option price is a current quote and not a suggested entry price.

Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Monday Suffers Some Profit Taking

by James Brown

Click here to email James Brown

Editor's Note:

After a six-week rally the stock market suffered some profit taking. Disappointing Chinese economic data this morning helped spark the sell-off. Fortunately traders are still buying the dips.

BA has been removed.
SIG and CP hit our stop loss.


Current Portfolio:


CALL Play Updates

Capital One Financial - COF - close: 80.45 change: -0.97

Stop Loss: 78.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 3.5 million
Entry on November -- at $---.--
Listed on November 07, 2015
Time Frame: 6 to 8 weeks
New Positions: Yes, see below

Comments:
11/09/15: The market retreated on Monday and COF was not immune. Shares slipped -1.19% but managed to find support near the $80.00 level intraday. I do not see any changes from my prior comments. Our suggested entry point for call positions is $82.15.

Trade Description: November 7, 2015:
Most people probably think of Capital One as a credit card company. They are also one of the top ten largest banks, based on deposits. The company is #145 in the Fortune 500. According to COF they have nearly 45 million customer accounts.

COF is part of the financial sector. According to the company, "Capital One Financial Corporation (www.capitalone.com) is a financial holding company whose subsidiaries, which include Capital One, N.A., and Capital One Bank (USA), N.A., had $212.9 billion in deposits and $313.7 billion in total assets as of September 30, 2015. Headquartered in McLean, Virginia, Capital One offers a broad spectrum of financial products and services to consumers, small businesses and commercial clients through a variety of channels. Capital One, N.A. has branches located primarily in New York, New Jersey, Texas, Louisiana, Maryland, Virginia and the District of Columbia."

COF's earnings results have been on something of a roller coaster. That big plunge in the stock price in July was a reaction to disappointing Q2 earnings (announced July 23rd). COF's earnings results were 19 cents worse than expected and revenues came in below expectations.

Shares reversed higher in late October when COF delivered better than expected Q3 results. Analysts were expecting a profit of $1.97 a share on revenues of $5.89 billion. COF beat estimates on both fronts with earnings of $2.10 a share. Revenues were up +4.6% to $5.9 billion. Shares of COF surged on this news and rallied to the $81.50 area, which has been resistance the last two weeks.

COF and most of the financials displayed relative strength on Friday (Nov. 6th) as the market reacted to the October jobs report. The better than expected jobs number almost guarantees the Federal Reserve will raise interest rates in December. This is very significant for the financials.

The Fed hasn't raised interest rates in almost a decade. When they do the banks should see a bump in their profit margin. Bears could argue that the Fed will raise rates so slowly it will take a long time for the banks to see any real impact. That might be true but the markets are always looking ahead and the financial sector should rally into the Fed's interest rate hike cycle.

Another bonus for the banks and credit card companies like COF was the surge in consumer credit. According to the Federal Reserve the U.S. saw consumer credit rise at a seasonally adjusted rate of +7.5% in the third quarter. Yet the numbers that just came out on Friday show that consumer credit surged to a higher than expected +10% annual rate in September.

Technically shares of COF appear to be coiling for a bullish breakout past resistance near $81.50. The point & figure chart is already bullish and forecasting a long-term target of $99.00. Tonight we are suggesting a trigger to buy calls at $82.15.

Trigger @ $82.15

- Suggested Positions -

Buy the 2016 JAN $85 CALL (COF160115C85)

Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.

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


Salesforce.com, Inc. - CRM - close: 78.22 change: -1.19

Stop Loss: 75.75
Target(s): To Be Determined
Current Option Gain/Loss: +14.8%
Average Daily Volume = 3.6 million
Entry on October 12 at $76.25
Listed on October 07, 2015
Time Frame: Exit PRIOR to earnings on November 18th
New Positions: see below

Comments:
11/09/15: CRM was also caught up in the market's widespread decline today. Shares pierced short-term technical support at its rising 20-dma. The stock dipped to $77.41 before paring its losses.

No new positions at this time. We are planning to exit prior to CRM's earnings on November 18th.

Trade Description: October 7, 2015:
Cloud computing and software giant CRM has been churning sideways for almost seven months. In spite of this lack of upward movement CRM is still outperforming the broader market. The NASDAQ composite is up +1.2% year to date. CRM is up +26%. The good news is that CRM looks poised to breakout past major resistance and begin its next leg higher.

CRM is part of the technology sector. According to the company, "Salesforce is the world's #1 CRM company. Our industry-leading Customer Success Platform has become the world's leading enterprise cloud ecosystem. Industries and companies of all sizes can connect to their customers in a whole new way using the latest innovations in cloud, social, mobile and data science technologies with the Customer Success Platform."

CRM's revenues have been consistently growing in the mid +20% range the last few quarters. Their Q4 revenues were up +26%. Q1 revenues were +23%. The company's most recent quarter was announced August 20th. Analysts were expecting Q2 results of $0.17 a share on revenues of $1.6 billion. CRM beat both estimates with a profit of $0.19 as revenues grew +23.5% to $1.63 billion. Management raised their Q3 and full year 2016 revenue guidance.

Technically the stock is in a long-term up trend and the point & figure chart is forecasting an $85.00 target. The $75.00-76.00 area is major resistance with CRM failing in this region multiple times. The recent rally has boosted CRM back to this level and the stock looks poised to breakout soon.

(Side note - CRM did hit an intraday high of $78.46 on April 29th thanks to M&A rumors. The company is still considered a potential acquisition target by larger rivals.)

We like CRM's relative strength and consistently strong earnings and revenue growth. A breakout here could spark a run that lasts until the company's earnings report in November. Tonight we are suggesting a trigger to buy calls if CRM trades at $76.25 (or higher).

- Suggested Positions -

Long DEC $80 CALL (CRM151218C80) entry $3.05

10/31/15 new stop @ 75.75
10/17/15 new stop @ 74.75
10/12/15 triggered @ $76.25
Option Format: symbol-year-month-day-call-strike


The Home Depot, Inc. - HD - close: 124.50 change: -1.48

Stop Loss: 121.75
Target(s): To Be Determined
Current Option Gain/Loss: +37.8%
Average Daily Volume = 5.3 million
Entry on October 08 at $120.25
Listed on October 05, 2015
Time Frame: Exit PRIOR to earnings on November 17th
New Positions: see below

Comments:
11/09/15: Ouch! HD only lost -1.1% but our option value got crushed. That's because we are holding the November calls, which expire in two weeks.

HD found support at its 20-dma midday. More conservative traders may want to move their stop loss closer to today's low ($123.71).

No new positions at this time. We plan on exiting prior to HD's earnings report on Nov. 17th.

Trade Description: October 5, 2015:
Home Depot's stock has outperformed the broader market in spite of the fact shares have been stuck in a trading range for the last seven months. That could be about to change.

The big surge in the U.S. housing market this year has been a bullish tailwind for HD's business. The home remodeling and repair industry and consumer spending in this category is expected to hit levels not seen since before the "Great Recession" in 2008-2009. HD is poised to reap the benefits.

HD is in the services sector. According to the company, "The Home Depot is the world's largest home improvement specialty retailer, with 2,270 retail stores in all 50 states, the District of Columbia, Puerto Rico, U.S. Virgin Islands, Guam, 10 Canadian provinces and Mexico. In fiscal 2014, The Home Depot had sales of $83.2 billion and earnings of $6.3 billion. The Company employs more than 370,000 associates. The Home Depot's stock is traded on the New York Stock Exchange (HD) and is included in the Dow Jones industrial average and Standard & Poor's 500 index."

HD has been showing steady earnings and revenue growth. The company has beaten Wall Street estimates on both the top and bottom line the last three quarters in a row. Management has also raised their guidance the last three quarters in a row.

Their most recent report was August 18th. HD announced its Q2 earnings were up +14% from a year ago to $1.71 per share. Revenues were up +4.3% to $24.83 billion. Comparable store sales came in better than expected with a +4.2% improvement.

Wall Street analysts seem bullish with firms like Deutsche Bank and UBS recently raising their price targets on HD. Currently the point & figure chart is bearish but a rally past $120.00 would generate a brand new buy signal.

Earlier I mentioned that HD has been stuck in a long trading range or consolidation for most of 2015. With the exception of a few days, shares of HD have been churning sideways in the $110-120 range. Today HD looks poised to breakout from this channel. The $120.00 level is round-number resistance. Tonight we are suggesting a trigger to buy calls at $120.25. Plan on exiting prior to HD's earnings report in mid November.

- Suggested Positions -

Long NOV $125 CALL (HD151120C125) entry $1.43

10/22/15 new stop @ 121.75
10/10/15 new stop @ 117.45
10/08/15 triggered @ $120.25
Option Format: symbol-year-month-day-call-strike


iShares Russell 2000 ETF - IWM - close: 117.82 change: -1.40

Stop Loss: 114.85
Target(s): To Be Determined
Current Option Gain/Loss: +16.9%
Average Daily Volume = 36 million
Entry on October 28 at $116.55
Listed on October 24, 2015
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
11/09/15: Today's pullback in the IWM (-1.1%) erased Friday's gain. Shares of this ETF did find support near the rising 10-dma. If the 10-dma fails the IWM should find extra support near $116.00.

No new positions at this time.

Trade Description: October 24, 2015:
If you haven't noticed the market is in rally mode. Worries over the Fed raising rates in 2015 are fading while the rest of the world is trying to add stimulus to their economies. Concerns over a terrible Q3 earnings season are also fading. Yes, earnings results have been bad but the bar was set low enough that companies are beating estimates. Now the U.S. market is surging.

One area of the market has lagged behind and that is the small cap stocks. The NASDAQ composite ended the week with a +6.3% gain for 2015. The S&P 500 edged back into positive territory with a +0.8% gain for the year. Yet the small cap Russell 2000 index is still down -3.2%. It's time for the small caps to play catch up with the rest of the market.

A couple of issues have driven this divergence. Right now big caps are outperforming because mutual fund and hedge fund managers are probably window dressing their portfolios for the end of their fiscal year (October 31st). Another factor has been weakness in the biotech stocks. Biotechs reversed sharply in the last three months and they have struggled to keep up with the market's rebound. Currently there are a lot of small biotech companies in the small cap index. Biotechs now account for about 7% of the Russell 2000 index. This group has definitely lagged the rest of the market over the last three weeks.

The good news is that the IWM small cap ETF, which tracks the Russell 2000 index, looks poised to breakout higher. It has been coiling below resistance in the $116 area the last several days. When it finally breaks higher it can move pretty quick.

Tonight we are suggesting a trigger to buy calls at $116.55. If triggered we will start with a stop loss at $113.35. This is a multi-week trade.

- Suggested Positions -

Long 2016 JAN $120 CALL (IWM160115C120) entry $1.89

11/03/15 new stop @ 114.85
10/28/15 triggered @ $116.55
Option Format: symbol-year-month-day-call-strike


Lear Corp. - LEA - close: 123.54 change: +0.08

Stop Loss: 121.45
Target(s): To Be Determined
Current Option Gain/Loss: -23.0%
Average Daily Volume = 951 thousand
Entry on October 28 at $123.65
Listed on October 27, 2015
Time Frame: Exit PRIOR to December option expiration
New Positions: see below

Comments:
11/09/15: Monday was a relatively quiet session for shares of LEA. The stock dipped to $122.14 and then bounced back to actually close in the green (barely).

No new positions at this time.

Trade Description: October 27, 2015:
Shares of LEA experienced a correction this summer but the stock has come charging back. Year to day LEA is up +25% against the S&P 500, which is virtually flat with a +0.3% gain. The relative strength has been very evident in the last couple of months. The S&P 500 is up +10.6% from its August-correction lows. LEA is up +36% off its August intraday lows.

LEA is in the consumer goods sector. They are part of the auto parts industry. According to the company, "The Lear Corporation is a Fortune 500 company with world-class products designed, engineered and manufactured by a diverse team of talented employees. As a leading supplier of automotive seating and electrical, Lear serves its customers with global capabilities while maintaining individual commitment. With headquarters in Southfield, Michigan, Lear maintains 235 locations in 35 countries around the globe and employs approximately 135,000 employees. Lear is traded under the symbol [LEA] on the New York Stock Exchange."

The strong dollar has created negative currency headwinds for LEA but the company continues to beat on the bottom line. Their Q2 results, announced on July 24th, were better than expected with earnings of $2.82 per share. That was 34 cents above estimates. Management raised their full-year 2015 guidance.

The trend of better than expected earnings continued in the third quarter. LEA just announced their Q3 results a few days ago on October 23rd. Analysts were expecting a profit of $2.37 a share on revenues of $4.41 billion. LEA delivered a profit of $2.56 a share. That is a +33% jump from a year ago. Revenues were only up +2.3% to $4.33 billion. That missed expectations. However, if you discount negative currency headwinds, sales were up +11%. LEA management raised their 2015 outlook again.

These results were good enough to generate some bullish analyst comments on LEA and a new price target at $138.00. Coincidentally the point & figure chart is bullish and forecasting at $138 target. The current rally in LEA has produced a bullish breakout past major resistance in the $118.00 region, which should now become new support. More aggressive traders may want to buy calls now. We are suggesting a trigger to buy calls at $123.65, which would be a new all-time high. .

- Suggested Positions -

Long DEC $125 CALL (LEA151218C125) entry $3.70

11/03/15 new stop @ 121.45
10/28/15 triggered @ $123.65
Option Format: symbol-year-month-day-call-strike


Lam Research Corp. - LRCX - close: 77.00 change: +0.10

Stop Loss: 73.85
Target(s): To Be Determined
Current Option Gain/Loss: -15.2%
Average Daily Volume = 2.5 million
Entry on October 30 at $76.25
Listed on October 28, 2015
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
11/09/15: LRCX held up well today. Shares tested support near $76.00 again and rebounded back into positive territory by the close. Investors may want to wait for LRCX to rally past $78.00 before considering new bullish positions.

Trade Description: October 28, 2015:
Wall Street loves mergers and this month LRCX has jumped into the 2015 buying spree. Semiconductor stocks had a rough summer with the SOX semiconductor index plunging from early June through late August. Fortunately the group appears to have bottomed. LRCX's recent earnings news and acquisition announcement has accelerated the stock's rebound.

LRCX is part of the technology sector. According to the company, "Lam Research Corp. (LRCX) is a trusted global supplier of innovative wafer fabrication equipment and services to the semiconductor industry. Lam's broad portfolio of market-leading deposition, etch, and clean solutions helps customers achieve success on the wafer by enabling device features that are 1,000 times smaller than a grain of sand, resulting in smaller, faster, more powerful, and more power-efficient chips. Through collaboration, continuous innovation, and delivering on commitments, Lam is transforming atomic-scale engineering and enabling its customers to shape the future of technology. Based in Fremont, Calif., Lam Research is a Nasdaq-100 Index and S&P 500 company whose common stock trades on the Nasdaq Global Select MarketSM under the symbol LRCX."

LRCX's most recent earnings report was October 21st. Analysts were expecting a profit of $1.72 per share on revenues of $1.6 billion. LRCX delivered earnings of $1.82 a share. Revenues were up +38.8% from a year ago to $1.6 billion. Management then raised their Q2 earnings guidance to $1.32-1.52 a share, which is significant above analysts' estimates.

The news didn't stop there. LRCX also announced they were buying KLA-Tencor (KLAC) for $10.6 billion. This new combined company will have $8.7 billion in revenues.

Here are a few highlights from the LRCX-KLAC merger deal:

Creates Premier Semiconductor Capital Equipment Company: Strengthened platform for continued outperformance, combining Lam's best-in-class capabilities in deposition, etch, and clean with KLA-Tencor's leadership in inspection and metrology

Accelerates Innovation: Increased opportunity and capability to address customers' escalating technical and economic challenges Broadens Market Relevance: Comprehensive and complementary presence across market segments provides diversity, scale and value creating innovation opportunities

Significant Cost and Revenue Synergies: Approximately $250 million in expected annual on-going pre-tax cost synergies within 18-24 months of closing the transaction, and $600 million in annual revenue synergies by 2020 Accretive Transaction: Increased non-GAAP EPS and free cash flow per share during the first 12 months post-closing

Strong Cash Flow: Complementary memory and logic customer base, operational strength, and meaningful installed base revenues strengthen cash generation capability Anstice concluded, "We have tremendous respect for the company KLA-Tencor employees have built over nearly 40 years - their culture, technology, and operating practices. I have no doubt that our combined values, focus on the customer, and complementary technologies will create a trusted leader in our industry, capable of creating significant opportunity for profitable growth and in turn delivering tremendous value to all of our stakeholders. This is the right time for the right combination in our industry." You can read more details about the merger here.

The combination of the earnings beat, raised guidance, and the merger news launched LRCX stock higher. Traders have been consistently buying the dips since then. Now shares of LRCX are poised to break through technical resistance at its 200-dma soon. Shares have been upgraded with a new price target of $85.00. Meanwhile the point & figure chart is bullish and forecasting at long-term target of $107.00.

LRCX looks like it could run towards the 2015 highs in the $84-85 region. Today's intraday high was $76.19. We are suggesting a trigger to buy calls at $76.25.

- Suggested Positions -

Long JAN $80 CALL (LRCX160115C80) entry $3.30

11/03/15 new stop @ 73.85
10/30/15 triggered @ $76.25
Option Format: symbol-year-month-day-call-strike


Netflix, Inc. - NFLX - close: 109.86 change: -4.20

Stop Loss: 104.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 19 million
Entry on November -- at $---.--
Listed on November 05, 2015
Time Frame: 6 to 8 weeks
New Positions: Yes, see below

Comments:
11/09/15: After six weeks of gains the market suffered some profit taking today. NFLX was hit with a -3.6% drop. Traders started to buy the dip near short-term technical support at the simple 10-dma.

Tonight we are adjusting our entry point strategy. If you think this pullback continues then I suggest buying NFLX calls on a dip near $106.00 and moving your stop loss just below $100. However, we suspect that NFLX is actually going to bounce from current levels. Tonight the newsletter is adjusting our suggested entry point down to $111.35 and we'll adjust the stop loss to $104.25.

Trade Description: November 5, 2015:
Netflix has come a long way from its late 1990s roots as a DVD-rental-by-mail business. Today it is one of the largest online streaming video-on-demand businesses. The company's most recent earnings report was disappointing but failed to derail enthusiasm for the stock.

NFLX is part of the services sector. According to the company, "Netflix is the world's leading Internet television network with over 69 million members in over 60 countries enjoying more than 100 million hours of TV shows and movies per day, including original series, documentaries and feature films. Members can watch as much as they want, anytime, anywhere, on nearly any Internet-connected screen. Members can play, pause and resume watching, all without commercials or commitments."

Traditional media giants have been struggling with a massive change in consumer viewing habits. More and more people are "cutting the cord" with traditional cable television subscription packages. Case in point, Time Warner (TWX) just reported earnings this week and lowered their guidance as they expect more pay-TV subscribers to leave. That's because there are too many online streaming video options that are more competitive than regular cable services. NFLX has been a significant winner as people cut the cord.

NFLX is one of the market's best performers this year with a +132% gain year to date. Yet NFLX is not invincible. Doubts have been growing about NFLX's ability to keep growing and its rising costs. Their most recent earnings report is a good example.

NFLX announced their Q3 earnings results on October 14th. They missed Wall Street estimates on both the top and bottom line. Analysts were expecting a profit of $0.08 a share on revenues of $1.75 billion. NFLX delivered $0.07 a share. Revenues were up +23% to $1.74 billion. It wasn't a big miss but it was a miss. Furthermore NFLX management lowered their Q4 guidance below estimates. They now see Q4 earnings at $0.02 a share compared to estimates at $0.03.

One of the biggest disappointments was domestic subscriber growth. NFLX added 3.62 million subscribers globally. 2.74 million where international subscribers. The rest, 880,000 subs, were U.S. subscribers. That was significantly below analysts' estimates at 1.25 million.

NFLX partially blamed this subscriber miss on the credit card industry, which has been issuing new, more sophisticated credit cards with security chips in them. Essentially subscribers needed to update their billing info with the new card and that didn't happen, which produced more customer "churn". At least that is the story from NFLX. Credit card experts think this story is baloney and just a scapegoat for NFLX's poor growth.

Another challenge facing NFLX is growing competition. Amazon.com tries to dominate every market they are in. Their Amazon.com video streaming service is $99.00 a year (about $8.25/month) but this hasn't stopped NFLX's growth. Hulu has been a competitor in the online streaming video industry for years. They just launched a new ad free subscription service at $11.99 a month. According to Hulu, the customer response has been awesome but they are not releasing any numbers on how many people have signed up. Hulu's advantage over NFLX is being able to watch current season TV on their service. Yet another competitor for NFLX is YouTube. YouTube is launching a paid subscription service called YouTube Red for $9.99 a month. In spite of all the competition NFLX remains the dominant player and they continue to expand both in the U.S. and overseas. (FYI: new subscribers pay $9.99 a month for NFLX)

If missing earnings estimates and lowering guidance wasn't bad enough NFLX also told investors that they plan to raise additional capital next year (2016) to help "fund our continued content investments". That means more debt and could mean more stock (which dilutes shareholders). One of NFLX critics biggest arguments has been the company's rising expenses. Yet in spite of all these challenges NFLX's stock continues to perform.

Investors bought the post-earnings sell-off in the $97 range. Shares are now up three weeks in a row. They have filled the gap from October 15th (post-earnings drop) and kept rising. Now NFLX is on the verge of breaking out past its early October highs (near $115-116). The point & figure chart is bullish and forecasting at $148 target.

In summary, the growth story for NFLX seems a little bruised with their missed subscriber numbers. They continue to spend a ton of money on content and expansion. Yet investors continue to buy the name. The consumer trend of switching from traditional cable to streaming is not going to reverse and that benefits NFLX.

We are adding NFLX as a bullish candidate. We do consider it a higher-risk, more aggressive trader because shares can be so volatile. Tonight we are suggesting a trigger to buy calls at $116.15. I would use small positions to limit risk.

FYI: If you're curious about Netflix and their long-term outlook, check out this page on their website Netflix's View: Internet TV is replacing linear TV .

Trigger @ $111.35 *small positions to limit risk*

- Suggested Positions -

Buy the 2016 JAN $120 CALL (NFLX160115C120)

Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.

11/09/15 Entry Point Strategy Change - move the entry trigger from $116.15 down to $111.35. Adjust the stop loss down to $104.25.
Option Format: symbol-year-month-day-call-strike


United Technologies - UTX - close: 99.66 change: -1.14

Stop Loss: 97.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 3.1 million
Entry on November -- at $---.--
Listed on November 04, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: Yes, see below

Comments:
11/09/15: UTX followed the market lower this morning. Shares found support near $99.25 and spent half of the day churning sideways in the $99.25-99.70 zone.

Our suggested entry point for bullish positions is $101.15.

Trade Description: November 4, 2015:
It has been a tough year for UTX investors. The stock peaked near $124 a share in February 2015. Shares spent the next seven months in retreat. UTX finally bottomed in the $85-87 range in late September. Now shares appear to have reversed.

UTX is in the industrial goods sector. According to the company, "United Technologies, based in Farmington, Connecticut, provides high-technology systems and services to the building and aerospace industries." The company operates through different segments. They are: UTC Building & Industrial Systems, Pratt & Whitney (aircraft engines), UTC Aerospace Systems, and Sikorsky (helicopters). UTX is selling its Sikorsky unit to Lockheed Martin for $9 billion. The deal should close soon.

One of the biggest challenges for UTX has been an economic slowdown overseas and the strength of the U.S. dollar. The company gets more than 60% of their sales outside the U.S. That makes negative currency headwinds a serious issue.

Their most recent earnings report was October 20th. Analysts were expecting a profit of $1.56 a share on revenues of $14.59 billion. UTX beat the bottom line estimate with $1.67 a share, but that was still a double-digit decline from a year ago. Revenues were down -5.6% to $13.79 billion. Management reaffirmed their fiscal year 2015 guidance of $6.15-6.30 a share and revenues in the $57-58 billion range, which is in-line with Wall Street estimates. That was good enough for the street. The stock rallied.

The big reasons investors are looking past the disappointing earnings and revenue growth has been stock buybacks. Plus the current management has been selling off non-core assets as they try to streamline the company for better growth.

I mentioned earlier that UTX is selling their Sikorsky unit to LMT for $9 billion. UTX is going to use $6 billion of that money in an accelerated stock buyback program because they believe their stock is too cheap. Furthermore, UTX announced they were adding an extra $12 billion to their stock repurchase program. Altogether the company plans to spent $16 billion on stock buybacks through 2017.

Investors seem to like the news with shares up sharply from their Q3 report. The point & figure chart has turned bullish and is forecasting at $112 target. At the moment UTX is hovering near short-term resistance in the $100-101 zone. Tonight we are suggesting a trigger to buy calls at $101.15.

I will point out that UTX's daily chart seems to have resistance about every $5.00 ($105, $110, etc.). Odds are good we could see UTX rally back toward its simple 200-dma (currently near $109).

Trigger @ $101.15

- Suggested Positions -

Buy the 2016 JAN $105 CALL (UTX160115C105)

Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.

11/06/15 UTX finalized its sale of the Sikorsky helicopter business to Lockheed Martin today
Option Format: symbol-year-month-day-call-strike




PUT Play Updates

Anthem, Inc. - ANTM - close: 133.77 change: -0.21

Stop Loss: 141.00
Target(s): To Be Determined
Current Option Gain/Loss: -7.1%
Average Daily Volume = 2.2 million
Entry on November 04 at $134.25
Listed on November 03, 2015
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
11/09/15: ANTM tagged new relative lows midday before bouncing back to almost unchanged on the session.

No new positions at this time.

Trade Description: November 3, 2015:
The big healthcare stocks used to be unstoppable. The group delivered huge gains in 2013 and 2014. Unfortunately the rally has peaked in 2015 and now the major names are retreating, in spite of increased M&A in the industry.

ANTM is in the healthcare sector. According to the company, "Anthem is working to transform health care with trusted and caring solutions. Our health plan companies deliver quality products and services that give their members access to the care they need. With over 72 million people served by its affiliated companies, including more than 38 million enrolled in its family of health plans, Anthem is one of the nation's leading health benefits companies."

The big story for healthcare has been consolidation. The handful of major insurers are getting bigger as they gobble each other up. Last July ANTM announced they were buying smaller rival Cigna (CI) for $54 billion. ANTM is holding a special shareholder meeting on December 3rd to approve the issuance of more stock to help pay for the merger. The deal is not expected to close until the second half of 2016. When it does CI should add to ANTM's earnings.

Speaking of earnings, ANTM is still growing. They reported their Q3 earnings on October 28th. Wall Street expected a profit of $2.32 a share on revenues of $19.65 billion. ANTM beat both estimates with a profit of $2.73 a share. Revenues were up +7.6% to $19.77 billion.

Investors seemed disappointed with ANTM's rising costs. Their benefit expense ratio rose 110 basis points to 83.6%. Furthermore ANTM raised their fiscal year 2015 guidance to $10.10-10.20 a share but that was seen as anemic. Wall Street estimates were already at $10.22 a share.

The IBD recently noted that all five of the big health insurers saw ObamaCare exchange enrollments fall in the third quarter. The average decline was -8.3%. That could be significant. The Affordable Care Act (ObamaCare) has driven a lot of growth for the big insurers over the last few years. Unfortunately the ACA has been plagued with problems and rising costs.

A couple of weeks ago a Credit Suisse analyst downgraded the healthcare sector over high valuations. The sector has been underperforming. Furthermore analysts earnings revisions have been slowing. Essentially Wall Street thinks growth is slowing for the group. ANTM has seen analysts lowering their price targets on the stock.

Technically the healthcare sector and shares of ANTM peaked this past summer. Currently ANTM is flirting with a breakdown into bear market territory with a -19.8% drop from its June closing high. The point & figure chart is already bearish and forecasting at $122 target. A decline under $134.00 would reaffirm the sell signal. ANTM does have significant support in the $134.50-135.00 zone. We want to be ready when it does break down. Tonight we are suggesting a trigger to buy puts at $134.25.

- Suggested Positions -

Long 2016 JAN $130 PUT (ANTM160115P130) entry $5.60

11/04/15 triggered @ $134.25
Option Format: symbol-year-month-day-call-strike


Darden Restaurants - DRI - close: 61.36 change: -0.35

Stop Loss: 63.65
Target(s): To Be Determined
Current Option Gain/Loss: +18.6%
Average Daily Volume = 1.7 million
Entry on October 21 at $63.40
Listed on October 20, 2015
Time Frame: Exit PRIOR to earnings in December
New Positions: see below

Comments:
11/09/15: DRI plunged to new lows this morning. Shares traded under $60 before bouncing back. The stock almost made back to unchanged by the closing bell. I want to caution readers that the $60 level could be round-number support. This bounce might have more room to run. The $62-63 region should offer short-term resistance.

No new positions at this time.

Trade Description: October 20, 2015:
Consumer spending has been disappointing and some of the restaurant names are suffering for it. DRI has actually raised guidance two quarters in a row but investors are ignoring this news and seem to be focusing on the larger macro trends for the industry.

DRI is in the services sector. According to the company, "Darden Restaurants, Inc., (DRI) owns and operates more than 1,500 restaurants that generate $6.8 billion in annual sales. Headquartered in Orlando, Florida, and employing 150,000 people, Darden is recognized for a culture that rewards caring for and responding to people. Our restaurant brands - Olive Garden, LongHorn Steakhouse, Bahama Breeze, Seasons 52, The Capital Grille, Eddie V's and Yard House - reflect the rich diversity of those who dine with us. Our brands are built on deep insights into what our guests want."

DRI reported their Q4 report on June 23rd. They beat Wall Street's EPS estimate and raised their 2016 guidance. Shares popped on the news and the stock continued to rally into late summer. Unfortunately shares produced a bearish double-top pattern in the July-August time frame. DRI began to correct lower.

The company reported its 2016 Q1 results on September 22nd. Earnings of $0.68 per share beat estimates by 10 cents. Revenues were up +5.7% to $1.69 billion, which was above estimates. Same-store sales were up +3.4% for the quarter. Management raised their 2016 earnings guidance again. This looked like a pretty good report. Yet three days later investors sold the rally.

Nationwide the pace of consumer spending has been lower than expected. A few days ago an industry research firm said U.S. restaurant sales were up +1.5% in Q3 but that was slower than Q2's +1.8% growth. A higher tab helped offset slower traffic numbers. The outlook for traffic is worrisome. This firm expects restaurant traffic numbers to be stagnant. This is inline with another research note that expects foot traffic at retailers to fall -8% this holiday season.

The market used to think that consumers would take the money they saved from lower gasoline prices and spend it elsewhere. That doesn't seem to be happening. Now the restaurant industry is facing tough comparisons to last year's relatively healthy Q4 numbers.

Technically DRI is now in a bearish trend of lower highs and lower lows. Shares have broken down below their 200-dma. The oversold bounce just failed at resistance near $66.00. The point & figure chart is bearish and forecasting at $55.00 target. Tonight we are suggesting a trigger to buy puts if DRI trades down to $63.40. This is a multi-week trade. We will plan on exiting prior to earnings in December.

- Suggested Positions -

Long 2016 JAN $60 PUT (DRI160115P60) entry $2.15

10/31/15 new stop @ 63.65
10/21/15 triggered @ $63.40
Option Format: symbol-year-month-day-call-strike



CLOSED BULLISH PLAYS

The Boeing Company - BA - close: 145.98 change: -1.96

Stop Loss: 144.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 3.8 million
Entry on November -- at $---.--
Listed on November 02, 2015
Time Frame: 6 to 8 weeks.
New Positions: see below

Comments:
11/09/15: BA underperformed the broader market with a -1.3% decline on Monday. Shares did managed to bounce off short-term support near $145.

We have run out of patience for BA. The plan was to buy a breakout past resistance at $150.00 (trigger $150.25) but that hasn't happened yet. Tonight we are removing BA as a candidate.

Nimble investors may want to watch for BA to dip to and bounce from support near the $140 area as an alternative bullish entry point (with a relatively tight stop loss).

Trade did not open.

11/09/15 removed from the newsletter, suggested entry was $150.25

chart:


Signet Jewelers Limited - SIG - close: 146.85 change: +0.21

Stop Loss: 144.15
Target(s): To Be Determined
Current Option Gain/Loss: -54.7%
Average Daily Volume = 889 thousand
Entry on October 29 at $150.75
Listed on October 26, 2015
Time Frame: Exit PRIOR to earnings on November 24th
New Positions: see below

Comments:
11/09/15: SIG managed to end today's session in positive territory, which is impressive considering the market's widespread decline today. Unfortunately shares did drop at the open and fell to new two-week lows. Shares hit our stop loss at $144.15 before bouncing.

- Suggested Positions -

DEC $155 CALL (SIG151218C155) entry $4.30 exit $1.95 (-54.7%)

11/09/15 stopped out @ 144.15
11/07/15 Caution - SIG is showing some relative weakness
10/29/15 triggered @ $150.75, upgraded by Goldman Sachs
Option Format: symbol-year-month-day-call-strike

chart:


CLOSED BEARISH PLAYS

Canadian Pacific Railway - CP - close: 142.18 change: +7.87

Stop Loss: 138.55
Target(s): To Be Determined
Current Option Gain/Loss: -63.4%
Average Daily Volume = 1.0 million
Entry on November 02 at $139.75
Listed on October 31, 2015
Time Frame: Exit PRIOR to earnings in January
New Positions: see below

Comments:
11/09/15: Rumor and speculation that CP might make a bid to buy rival NSC sparked some huge moves in the railroads. About 1:52 pm the rumor hit and shares of NSC and CP exploded higher. CP ended the day with a +5.85% gain. NSC closed Monday with a +11% gain.

Our stop loss on CP was hit at $138.55.

- Suggested Positions -

2016 JAN $130 PUT (CP160115P130) entry $4.10 exit $1.50 (-63.4%)

11/09/15 stopped out (M&A rumors)
11/07/15 new stop @ 138.55
11/03/15 new stop @ 143.75
11/02/15 triggered @ $139.75
Option Format: symbol-year-month-day-call-strike

chart: