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Newsletter

Daily Newsletter, Wednesday, 11/18/2015

Table of Contents

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

Market Wrap

Another Bullish Opex Week

by Keene Little

Click here to email Keene Little
The rubber band was pulled back into a low on Monday morning and then buy programs were unleashed, which sparked short covering and the result has been another bullish opex week. It's a pattern that has worked repeatedly, which is a strong money maker for the big institutions that participate in this game.

Today's Market Stats

There hasn't been any particular news or earnings that sparked this rally so it's been more or less just another few buy programs that ignited short covering in order to get another bullish opex week. Selling puts has been a very big money maker for the big institutions and I'm sure more than a few buy a boat load of call options just before the rally gets started. Buying cheap front-week/month calls, especially with an 60-point SPX rally as we've seen off Monday's low, can return a very handsome profit. It's a game that earns these institutions a lot of money more often than not.

Jamming the market higher during opex is also the reason why there's often a hangover the following Monday as the firms let go of the inventory and/or futures that they purchased for the sole purpose of pushing the indexes higher. We often see a lack of market internal strength, as we're seeing in this rally compared to previous strong rallies, because it's an effort to push the indexes higher, not necessarily all the other stocks. In fact the relative weakness in the RUT is an example of this. The advance-decline volume and a-d line often is lagging.

For example, if you look at a chart of the McClellan Summation index ($NYSI on stockcharts.com) you'll see it peaked at the November 3rd high and it's been in decline since then. It hasn't turned up this week and that tells us the indexes are rallying but the majority of stocks are not. That's a sign of weakness in a bull market rally and further evidence that this week's rally is more from the games these institutions play than real fundamental buying. It tells buyers to beware of what they're doing. It doesn't stop the rally from continuing but it does warn us that it's a weak rally despite how strong it appears from a price standpoint. Price is of course the final arbiter but the takeaway this week is that it's likely a manipulated rally instead of the real thing.

This morning's economic reports were largely ignored (again, it's opex week) but housing starts were weaker than expected, coming in at 1060K, which is 11% below October's 1191K, which was revised lower from 1206K. Building permits ticked higher, from 1105K to 1150K, so that's a good sign but it's hard to know how many permits will turn into building. The housing market has been relatively strong, despite consumers cutting back on their spending, but it's looking like housing might be taking a breather since the decline is more than would be expected from a seasonality perspective.

The stock market rally is into the headwinds of expectations for a Fed rate hike in December, although it's possible the market is expecting the rate hike to mean the economy is improving. There's now a lot of data, both industrial as well as retail, that says we're likely on the verge of the next recession (did you see the news that Japan is back into a recession?), if it hasn't already started, but the market is apparently ignoring the data and listening to economists' projections.

When it comes to rate projections, 88% of economists are now predicting the Fed will raise rates in December. You know my opinion of economists' predictions and I've often said that when they are in synch with a prediction it's usually a sure bet to go against them. We'll see how it goes in December. BTW, they were nearly unanimous as well in the past with about 80% predicting the Fed would raise rates in March, June and September. So the market is apparently pricing in a rate increase but why that's a good thing for the market is what's questionable. It would strengthen the dollar and that will hurt earnings for companies exposed to overseas markets. But alas I'm trying to use logic with the market and that's always an exercise in frustration.

But what happens if the Fed is forced to hold rates where they are? That would be a lot of egg on the faces of the Fed and economists so maybe they'll raise by 0.1% just to say they're doing something. Or they might stand pat and keep rates where they are but continue to talk tough about how they're really going to raise rates early in 2016. However, I think whatever they do will backfire on the market and any rally in anticipation of a rate increase could be a setup for disappointment.

Another bafflement is why the market is rallying in the face of deteriorating earnings now, as well as the downgrading we're seeing for future earnings. S&P has lowered their 2015 earnings estimates, which are now below earnings for 2013 and 2014. A year-over year drop in earnings should be of great concern since it has happened only three times since 1988 -- in 1990, 2001, and 2008. You'll recall 2001 and 2008 were not good years to be a bull. This data is almost a 100% guarantee that we will be in a recession in 2016. Meanwhile the stock market continues to whistle past the graveyard (I don't see no ghosts).

I'll start off tonight's chart review with the DOW, the most-watched index in the world. It's one of the better sentiment indicators and worth watching for that reason if no other. The weekly chart below shows last week's minor break of support at the trend line along the highs from 2000-2007 (the top of the big megaphone pattern I've shown before, which suggests a big move back down over the next two years once the market tops out). This week's bounce is a strong recovery and has so far retraced more than 78.6% of last week's decline, at 17679, with today's high at 17752, which suggests we'll see a new high above the November 3rd high near 17540. There is price-level S/R near 17700 and then its downtrend line from May-July near 17685, both of which were exceeded today. And it closed above its 50-dma at 17594, all of which is bullish. The bullish pattern calls for a new high above its May high at 18351, with a price projection at 18510 as the target price. That's where the 5th wave of the move up from August would equal the 1st wave.

Dow Industrials, INDU, Weekly chart

The daily chart shows the close above its May-July downtrend line, near 17685, as well as its 20- and 200-dmas, which clearly made it a bullish day. The bullish pattern calls for the rally to continue into the end of the month to the upside target at 18510, which will be modified if and when the rally continues and the short-term projection can be updated. The bearish pattern calls for a resumption of the decline that started off the November 3rd high. Because the price pattern for both last week's decline and this week's rally is not clear (impulsive vs. corrective), I can't be sure which way this is going to go next, hence follow a break of one of the key levels at either the November 3rd high or Monday's low -- whichever one breaks first is the direction the market should go. Especially this week (opex), it's possible we'll see some whippy moves but no clear direction.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 17,978
- bearish below 17,210

As shown on the 60-min chart, the DOW also made it up to its downtrend line from November 3rd, near where it closed today at 17735. It could certainly back down from here, which made holding a long position a little risky at the close. Of course a favorite tactic with this market is to park an index at resistance (or support) and then use overnight futures to gap over S/R to get both sides chasing the move. If the rally continues Thursday morning keep an eye on 17840 since a 3-wave move up from Monday, with two equal legs up at that level, could result in a reversal back down. By this measure it would look even more bullish above 17840.

Dow Industrials, INDU, 60-min chart

SPX is looking the same as the DOW as it too has rallied back up to resistance. It has price-level S/R near 2075 and its 20-dma near 2076 (near 2079 tomorrow). Today it closed the gap down on November 12th, at 2075, and oftentimes traders look for that as their avenue of escape after being trapped by the gap down and selloff. That's why they are often resistance. But if the buying continues then the next level of resistance will be its broken uptrend line from October 2011 - October 2014, near 2093. Assuming the market is ready for a pullback (unless it's in a blow-off move to a top of significance), it's not clear yet whether we should look for just a pullback before heading higher or instead look for a rollover into a stronger decline. As with the DOW and the other indexes, the key levels to break are the November 3rd highs or Monday's lows in order to give us a better sense of direction from here.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2117
- bearish below 2019

NDX has rallied back up to its broken uptrend line from 2012-2013-2014, near 4640, and closed slightly above it. It has been oscillating about this trend line since breaking below it in August. It is also closed back above its broken 20-dma, near 4637 today, so it was a bullish day for NDX as well. Now the bulls need to keep it going so as to avoid a bull trap here.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4738
- bearish below 4486

Of the four major indexes I cover here, the RUT looks the most bearish, which goes back to the price pattern since the August low. I don't see anything bullish about it and while it could certainly continue higher with the other indexes and make at least a minor new high above its November 6th high, it's not an index that yells at me to get long. Instead I look at resistance levels to short and right now it's back-testing its broken 20-dma near 1172. But again, there's no clear short-term direction and I'd wait until a break of either its November 6th high near 1200 or Monday's low near 1140 before taking a position (other than day trading).

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1200
- bearish below 1140

It's no different with the granddaddy of the indexes, the Wilshire 5000. It closed above resistance near 21600 (price-level and 20-dma), at 21638, and has at least a little more upside potential to 21730-21760. That's where it would achieve two equal legs up from Monday and back-test its 200-dma. But if we're into the 5th wave of the move up from August then the upside projection for it is near 22300, which is where it would also back-test its broken uptrend line from December 2014 - February-July 2015. Like the other indexes, it's unclear which direction it will go and until it can get above 21760 I'd remain cautious about the upside (and obviously bears need to be cautious as every dip continues to get bought).

Wilshire 5000 index, W5000, Daily chart

Key Levels for W5000:
- bullish above 22000
- bearish below 21000

Unfortunately, the bond market is not providing any clearer short-term guidance at the moment. Like the stock market, I see the potential for another leg up for TNX (10-year yield) to complete a 5-wave move up from October 2nd. The 5th wave would equal the 1st wave at 2.475% if it continues higher from here (off Monday's low). But its bounce off Monday's low is not nearly as bullish as it appears for the stock indexes and it's not hard for me to argue it has already seen the high for the bounce, at 2.377% on November 9th. It was a good test of its downtrend line from June 2007 - December 2013.

10-year Yield, TNX, Daily chart

I thought the setup into the high for BKX on November 6th was a good one for a strong decline to follow. The decline into Monday's low broke its uptrend line from October 2nd and it broke back below the uptrend line from October 2011 - January 2015, its 200-dma and 20-dma and these multiple breaks had it looking bearish. But thanks to some help during opex week, this week's rally has had it recovering all those previous breaks except its uptrend line from October 2nd. In fact today's high is a back-test of its broken uptrend line and because of the previous setup into the November 6th high I think this is a good setup for a reversal back down. You can see RSI is also back-testing its broken uptrend line from the low in August. Obviously I'm fighting a bullish opex week and the other indexes that look potentially more bullish. But going with just BKX I don't feel so bullish here. If anything, the back-test is a good setup for the bears since you can use a tight stop.

KBW Bank index, BKX, Daily chart

Another index that supports a move at least a little higher is the TRAN, but it's also currently in a bearish continuation pattern that can only be negated with a sustained rally above its September and October highs near 8321. While the DOW has rallied strong off its August low, especially off the September 29th low, the TRAN has been a laggard and therefore a bearish non-confirmation so far. The pattern that it has formed since the August low is an ascending triangle, which in the position following its March-August decline is a bearish continuation pattern. I see upside potential to the top of the triangle, near 8321, but it doesn't have to get there and if it now drops below Monday's low near 7921 it would trigger the next sell signal. The next leg down, assuming we'll get it, will be much stronger than the March-August decline.

Transportation Index, TRAN, Daily chart

For most of this year I was thinking we'd see more or less a choppy pullback in a descending wedge kind of pattern but the stronger rally in the past two weeks put the kibosh on that pattern. Instead, now it looks like we'll get a test of the March high at 100.78 before dropping back down (I continue to believe the dollar is not ready to rally stronger than that yet). There's a price projection at 100.88 where the 2nd leg of the rally from August would be 162% of the 1st leg. That coincides nicely with the March high and it's another reason why I don't think the dollar will make it higher than that. The leg up from October 15th is into its 5th wave and it could complete at any time and therefore I see the upside for the dollar as riskier than the downside. Another drop down to, or likely below, the August low at 92.52, should be the next move. If true, it suggests the Fed will not be raising rates in December (I think the current rally is in anticipation of the Fed raising rates).

U.S. Dollar contract, DX, Daily chart

Gold hasn't started a bounce off support yet but I'm still thinking it will. It's actually broken support at its July low at 1072.30, with last night's low at 1062 but it might hold near its trend line along the lows from December 2013 - November 2014, near 1071. Today's close was at 1070.50. If we get a bounce, as depicted on the weekly chart below, I think it will only be a correction to the leg down from October's high, perhaps up to about 1130, and then continue lower. My downside target for a final low remains unchanged (price-level support near 1000, maybe down to 893 for a 62% retracement of its 2001-2011 rally). It's not showing much of a bullish divergence on the daily chart so it could continue lower but I am alert to the possibility that gold will soon put in a final low near this level. It is at the bottom of a descending wedge pattern since its December 2013 low and the bullish divergences on the weekly chart could be hinting of something more bullish sooner than I anticipate. A rally above its October 2015 high, near 1192, is needed to negate the bearish expectations for lower prices.

Gold continuous contract, GC, Weekly chart

The pattern for the pullback in oil, from its October 9th high, calls for a low at 40.02 for two equal legs down in an a-b-c pullback. Monday's low was 40.06 and today's midday low was 39.91, which was followed by a spike back up to close at 40.88. The $40 level looks like it might be defended but obviously it will be more bearish below that level, in which case I'd expect a full-on test of its August low at 37.75. But if the pullback from October 9th is only part of a larger 3-wave bounce off the August low we should now see a rally take oil up to the $53 area as part of a larger sideways consolidation pattern. I haven't given up on the idea for a larger consolidation into the first half of 2016 before letting go to the downside but that means oil should start a rally from here.

Oil continuous contract, CL, Daily chart

Tomorrow's economic reports will not likely move the markets so they'll be on their own to get manipulated into the end of opex week.

Economic reports and Summary

Conclusion

This opex week has been like so many others before it -- pull the indexes down into the Thursday-Monday leading into opex week and then let the rubber band go with a few good buy programs that ignites short covering. We've seen a straight-up rally follow the low on Monday (except for a relatively minor pullback Tuesday afternoon) and it's looking like the rally could continue at least a little higher on Thursday and maybe into Friday morning to get a high closing price for SPX. They could be going for a 2100 settlement price, which from 2020 Monday morning makes for a very nice weekly gain on call options bought on Monday. But stay cautious because moves can come out of nowhere and can be exaggerated as traders position solely because of their options positions and not because of what they believe for the market. And once a bullish opex week finishes there's often a hangover the following Monday. But for now the bulls are back in control until proven otherwise and the first sign of trouble for the bulls would be a drop below Tuesday afternoon's low since it would then leave a 3-wave bounce correction off Monday's low. Trade carefully, or watch from the sidelines, the rest of this week. There are just enough hints of danger (such as from the banking index as well as some weak market internals vs. the strength of the price move) to suggest bulls cannot afford to get complacent here. On the other hand, bears clearly need to respect the upside potential.

Good luck and I'll be back with you next Wednesday.

Keene H. Little, CMT

In the end everything works out and if it doesn't work out, it is not the end. Old Indian Saying


New Option Plays

Relative Strength In The Industrial Sector

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Lennox Intl. Inc. - LII - close: 136.74 change: +2.57

Stop Loss: 132.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 425 thousand
Entry on November -- at $---.--
Listed on November 18, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Trade Description:
Not many publicly-traded companies can say they have been around for over 100 years. LII started back in 1895. The last four years have been solid for bullish investors in the stock. There was a big pullback in mid 2014 but the stock recovered. Since then LII has been setting a string of new all-time highs.

LII is in the industrial goods sector. According to the company, "Lennox International is a leading provider of climate control solutions for heating, air conditioning and refrigeration markets around the world. We have built our business on a heritage of integrity and innovation dating back to 1895. Our employees are dedicated to providing trusted brands, innovative products, unsurpassed quality, and responsive service." The company operates three key businesses with a residential heating and cooling division, a commercial heating and cooling division, and a refrigeration business.

The earnings picture has been relatively solid as well. LII has beaten Wall Street's earnings and revenues estimates in three of the last four quarterly reports. Their most recent earnings report was October 19th. LII's earnings rose +26% from a year ago to $1.82 per share. That was three cents above estimates. Revenues were up +6.3% to $955 million versus the $940 million estimate. On a constant currency basis revenues were up +11%. Management raised their 2015 revenue forecast.

Todd Bluedorn, LII Chairman and CEO, commented on his company's quarter, "Lennox International realized strong revenue growth at constant currency and significant margin expansion across all three of our businesses in the third quarter. For the company overall, total segment profit set a third-quarter record, and profit margin expanded 140 basis points from the prior-year quarter to a record level of 13.7%. Our Residential business set third-quarter records for revenue, margin and profit as strong business momentum continued. Residential revenue was up 13% at constant currency, and margin expanded 240 basis points to 17.4%. In Commercial, segment profit and margin set new highs on 8% revenue growth at constant currency. North America and Europe both saw high single-digit revenue growth at constant currency. Commercial segment margin expanded 70 basis points to 18.2%. In Refrigeration, revenue was up 8% at constant currency, with double-digit growth in North America and Europe. Refrigeration margin expanded 220 basis points from the prior-year quarter to 10.7%."

It's hard to go wrong with record results and rising margins. The stock surged on this earnings report. Momentum finally stalled near $136-137 in early November. LII has spent the last couple of weeks consolidating gains in a sideways trading pattern. Shares were relatively resistant to the market's mid-November swoon. Now with the market in rally mode LII is on the verge of another breakout higher. Today's high was $136.94. Tonight we are suggesting a trigger to buy calls at $137.25.

Trigger @ $137.25

- Suggested Positions -

Buy the MAR $140 CALL (LII160318C140) current ask $5.80
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:



In Play Updates and Reviews

U.S. Market Rebound Gains Steam

by James Brown

Click here to email James Brown

Editor's Note:

The market was in rally mode today. Stocks actually accelerated higher following the FOMC minutes from the last meeting. Investors seem comfortable with the idea that the Fed will raise rates in December.

DIS hit our entry trigger.


Current Portfolio:


CALL Play Updates

Alkermes Plc - ALKS - close: 74.29 change: +0.01

Stop Loss: 69.75
Target(s): To Be Determined
Current Option Gain/Loss: -51.0%
Average Daily Volume = 699 thousand
Entry on November 17 at $75.25
Listed on November 10, 2015
Time Frame: Exit PRIOR to December option expiration
New Positions: see below

Comments:
11/18/15: Quick, somebody pinch ALKS. Shares appeared to fall asleep today. The stock traded sideways in a narrow range and closed almost unchanged on the session. This is disappointing considering the broad-market rally today. I would wait for a new rally above $75 before considering new positions.

Trade Description: November 10, 2015:
The healthcare and biotech names have started to show life again. Biotechs have definitely shown some relative strength in late October and now this week.

ALKS is in the healthcare sector. According to the company, "Alkermes plc is a fully integrated, global biopharmaceutical company developing innovative medicines for the treatment of central nervous system (CNS) diseases. The company has a diversified commercial product portfolio and a substantial clinical pipeline of product candidates for chronic diseases that include schizophrenia, depression, addiction and multiple sclerosis. Headquartered in Dublin, Ireland, Alkermes plc has an R&D center in Waltham, Massachusetts; a research and manufacturing facility in Athlone, Ireland; and a manufacturing facility in Wilmington, Ohio."

Recent earnings results have generally been better than expected. On July 30th ALKS reported its Q2 results with both earnings and revenues coming in above expectations. Management raised their fiscal 2015 guidance.

ALKS beat analysts' estimates again when they reported their Q3 results on October 29th. The company lost ($0.18) a share but that was better than the estimates for ($0.21). Revenues were down -4.6% to $152.7 million but that was better than expected.

In ALKS' Q3 press release they provided a breakdown of revenues:

Manufacturing and royalty revenues from RISPERDAL CONSTA and INVEGA SUSTENNA/XEPLION were $67.6 million, compared to $68.5 million for the same period in the prior year.

Net sales of VIVITROL were $37.9 million, compared to $25.8 million for the same period in the prior year, representing an increase of approximately 47%.

Manufacturing and royalty revenues from AMPYRA/FAMPYRA 1 were $22.1 million, compared to $16.5 million for the same period in the prior year.

Royalty revenue from BYDUREON was $13.0 million, compared to $10.3 million for the same period in the prior year.

A few weeks ago ALKS announced that the FDA had approved their ARISTADA treatment for schizophrenia. ALKS explained that schizophrenia is a chronic, severe and disabling brain disorder that affects millions of patients in the U.S.

In ALKS' Q3 press release the company also announced they were working toward key milestones for their ALKS 3831 treatment for schizophrenia, their ALKS 8700 treatment for multiple sclerosis, and their ALKS 5461 treatment for major depressive disorder. They expect more data on all three within the next six months.

Technically the stock has soared from the bottom of its major trading range near $55 toward the top of its trading range near $75.00. The current rally has produced a buy signal on the point & figure chart, which is also forecasting a long-term target of $108.00.

The key level to watch is resistance at $75.00. ALKS has been consolidating sideways in the $70-74 zone the last several days but shares are on the verge of a breakout. It would be tempting to buy calls on a rally above today's high ($74.11) but we are suggesting a trigger to buy calls at $75.25, which would be a new multi-year high and above resistance from early 2015.

- Suggested Positions -

Long DEC $80 CALL (ALKS151218C80) entry $2.45

11/17/15 triggered @ $75.25
Option Format: symbol-year-month-day-call-strike


The Walt Disney Company - DIS - close: 118.14 change: +2.01

Stop Loss: 113.75
Target(s): To Be Determined
Current Option Gain/Loss: +1.0%
Average Daily Volume = 10.6 million
Entry on November 18 at $117.75
Listed on November 12, 2015
Time Frame: Exit PRIOR to 2016 January option expiration
New Positions: see below

Comments:
11/18/15: The rally in DIS continued today with shares gaining another +1.7%. The stock rallied past its mid November high and hit our suggested entry point at $117.75 today.

Trade Description: November 12, 2015:
Star Wars fans are counting down the days until episode seven, The Force Awakens, hits theaters. DIS is poised to reap a galaxy of profits as the company re-launches the Star Wars franchise.

DIS has been a big cap superstar with strong, steady gains off its 2011 lows. That changed in August this year. Shares of DIS plunged into a very sharp and painful correction. The catalyst for the drop was the company's earnings report. Disney reported earnings on August 4th and beat the street with earnings of $1.45 compared to estimates for $1.42. The very next day shares fell -$11.00 to $110. The sell-off accelerated in August thanks to the global market meltdown during that time frame. Since then shares have recovered.

Disney posted $13.1 billion in revenue compared to estimates for $13.2 billion. That minor miss was not the reason for the huge decline in the stock. Disney said revenues in its cable products rose +5% BUT they had seen some pressure from online streaming. Subscription growth to the ESPN cable bundle had slowed, not declined, just slowed.

There are multiple reasons. There were no major sporting events this summer like the World Cup, Olympics, etc. Some consumers are cutting the cord to cable because they are now getting their TV programming from Netflix, Hulu, etc. Cable is expensive compared to the streaming options. The drop off in ESPN growth is not related specifically to Disney. CEO Bob Iger said subscriptions would pick back up in 2016 and expand sharply in 2017 thanks to a flood of sporting events due to come online next year.

Disney has already purchased the rights to nearly every sporting event available in the next five years but the old contracts with the prior rights holders have yet to expire. As those contracts expire and the new Disney contracts begin the content on ESPN will surge.

(sidenote - The advertising environment for television should also improve in 2016 thanks to the U.S. presidential election.)

This slowdown in ESPN growth should be ignored. This is just a small part of the Disney empire and everything else is growing like crazy. Parks and resorts revenue rose +4%. Consumer products revenue rose +6% thanks to Frozen, Avengers and Star Wars merchandise. The only weak spot was interactive gaming, which declined -$58 million to $208 million. Disney expects that to rebound in Q4 as new games are released and holiday shopping begins.

The real key here is the theme parks, cruises and most of all the movie franchises. They have five Star Wars movies in the pipeline and the one opening this December is expected to gross $2.2 billion and provide Disney with more than $1 billion in profits. This is just one of the blockbusters they have scheduled.

The Avengers movie in April was a hit and added greatly to their Q2 earnings. However, that will just be a drop in the bucket compared to the money they are going to make on the Star Wars reboot in December. That is the first of five Star Wars movies on the calendar. Remember, Disney now has Marvel, Pixar and Star Wars (Lucasfilm) all under the same roof. The company has a strong line up of movies in the pipeline and they all feed their massive merchandising machine.

Disney Movie Schedule (partial list)

Dec. 18, 2015 - "Star Wars: Episode VII - The Force Awakens"
2016 - "The Incredibles 2"
2016 - "Frozen" sequel
April 2016 - "Captain America: Civil War"
June 2016 - "Finding Dory"
Dec. 2016 - "Star Wars Anthology: Rogue One"
May 2017 - "Star Wars: Episode VIII"
June 2017 - "Toy Story 4"
Late 2017 - "Thor: Ragnarok"
May 2018 - "Avengers: Infinity War - Part I"
2018 - "Untitled Star Wars Anthology Project"
May 2019 - "Avengers: Infinity War - Part II"
2019 - "Star Wars: Episode IX"

Content is still king and DIS rules. They're going to make a hoard of money off their Star Wars movies but that's just the tip of the iceberg. There will be tons of money made on merchandising from toys, clothing, video games, and just about everything else under the sun they can slap a Star Wars logo on.

The stock's correction from $121 to $90 in August 2015 was abrupt. DIS quickly fell from correction territory to bear-market territory in just a few days. Fortunately DIS produced a pretty good rebound.

Several days ago DIS reported their Q4 earnings on November 5th. Analysts were expecting a profit of $1.14 a share on revenues of $13.52 billion. DIS delivered $1.20 a share. Revenues were up +9% to $13.51 billion. The market is still worried about DIS' ESPN unit but these concerns were overshadowed by excitement over the new Star Wars franchise, which kicks off on December 18. That's just 34 days away. Shares of DIS could see a pre-movie rally as the hype builds up for the movie launch.

Technically shares of DIS are arguably overbought with a surge from $98 to $118 since its late September lows. One reality of the market is that overbought stocks can always get more overbought. The stock did see some volatility on November 4th in reaction to earnings from rival Time Warner. Today shares of DIS displayed some strength. The S&P 500 fell -1.39% yet DIS only dropped -0.26%. Another reason DIS could outperform between now and year end is mutual fund and hedge fund managers trying to boost their performance. It's been a tough year for money managers. Odds are they will be chasing performance in the market. A high-profile, big cap winner like DIS is a prime target for them.

The high this week was $117.58. Tonight we are suggesting a trigger to buy calls at $117.75.

- Suggested Positions -

Long 2016 JAN $120 CALL (DIS160115C120) entry $2.92

11/18/15 triggered @ $117.75
Option Format: symbol-year-month-day-call-strike


Global Payments Inc. - GPN - close: 70.90 change: +0.82

Stop Loss: 66.75
Target(s): To Be Determined
Current Option Gain/Loss: -8.9%
Average Daily Volume = 718 thousand
Entry on November 17 at $70.25
Listed on November 11, 2015
Time Frame: Exit PRIOR to December options expiration
New Positions: see below

Comments:
11/18/15: GPN performed well today. Traders bought the dip this morning near $69.60. Shares rallied back above round-number resistance to close at new highs. Today's move looks like another bullish entry point for traders.

Trade Description: November 11, 2015:
Consistently strong earnings growth can do wonders for your stock price. Just ask GPN. Shares are up +72% year to date. That compares to a +0.8% gain in the S&P 500 and a +7% rally in the NASDAQ this year. The rally in GPN started a couple of years ago and shares are up +218% from its $22 lows in 2013.

GPN is in the services sector. According to the company, "Global Payments Inc. (GPN) is a leading worldwide provider of payment technology services that delivers innovative solutions driven by customer needs globally. Our partnerships, technologies and employee expertise enable us to provide a broad range of products and services that allow our customers to accept all payment types across a variety of distribution channels in many markets around the world. Headquartered in Atlanta, Georgia with approximately 4,500 employees worldwide, Global Payments is a Fortune 1000 Company with merchants and partners in 29 countries throughout North America, Europe, the Asia-Pacific region and Brazil."

This company has beaten Wall Street's earnings estimates every quarter this year. Not only that but GPN has raised guidance the last four quarters in a row. GPN has delivered two years of consistent earnings growth and investors have noticed.

Last year (fiscal 2015) the company earned $4.12 a share. That was a +22% improvement from the prior year. This year analysts are expecting GPN's earnings to grow +39%.

GPN's most recent earnings report was October 7th. Earnings surged +37.5% from the prior year. GPN beat on both the top and bottom line. They raised their fiscal 2016 guidance above Wall Street estimates. Plus they announced a 2-for-1 stock split, which took place on November 2nd.

Jeff Sloan, CEO, commented on their quarter, "We are delighted with our outstanding first quarter results, which represent an excellent start to the 2016 fiscal year and a continuation of exceeding our expectations across our markets. This performance builds on the momentum we have generated as we continue to invest in our strategy to expand distribution and create competitive differentiation through technology by delivering innovative solutions globally."

You can see the surge in GPN's stock following its October 7th earnings report. Investors have been buying the dips. Today GPN is challenging round-number resistance at the $70.00 level. Tonight we are suggesting a trigger to buy calls at $70.25.

- Suggested Positions -

Long DEC $70 CALL (GPN151218C70) entry $2.25

11/17/15 triggered @ $70.25
Option Format: symbol-year-month-day-call-strike


Huntington Ingalls Industries - HII - close: 131.43 change: -0.32

Stop Loss: 125.95
Target(s): To Be Determined
Current Option Gain/Loss: -26.3%
Average Daily Volume = 318 thousand
Entry on November 17 at $132.05
Listed on November 16, 2015
Time Frame: Exit PRIOR to December option expiration
New Positions: see below

Comments:
11/18/15: It was disappointing to see HII fail to participate in the market's big rally on Wednesday. Shares slipped -0.2% while the S&P 500 surged +1.6%. The only positive about today's session was HII finding support near $130. Today's intraday high was $132.60. Readers may want to wait for HII to trade above this level before initiating new positions.

Trade Description: November 16, 2015:
Defense stocks were in the spot light today. The tragic terrorist attack in Paris on Friday has changed the worldview for many governments. Most major world powers have vowed to intensify their efforts to destroy ISIS. That should mean additional defense spending.

HII is in the industrial goods sector but it's part of the defense industry. According to the company, "Huntington Ingalls Industries is America's largest military shipbuilding company and a provider of engineering, manufacturing and management services to the nuclear energy, oil and gas markets. For more than a century, HII's Newport News and Ingalls shipbuilding divisions in Virginia and Mississippi have built more ships in more ship classes than any other U.S. naval shipbuilder. Headquartered in Newport News, Virginia, HII employs approximately 37,000 people operating both domestically and internationally."

The earnings picture has been mixed for HII. The market was relatively forgiving with the company's most recent earnings report. HII announced its Q3 results on November 5th. Earnings were up +18.5% from a year ago to $1.98 a share. That actually missed Wall Street estimates by three cents. Revenues were up +4.8% to $1.8 billion, which was above expectations. HII said their total operating margin improved from 10.0% to 11.1%. Management also said their backlog grew about $800 million to $23.3 billion.

The stock reacted sharply with a surge to new multi-month highs. Since this earnings report HII has been digesting its gains in a sideways consolidation pattern. Friday's market decline pushed HII to short-term technical support at the 10-dma. Today shares bounced +3.1% to set a new six-month closing high. We think this rally continues. The point & figure chart is bullish and forecasting a long-term target of $179.00.

Tonight we are suggesting a trigger to buy calls at $131.75.

FYI: HII will begin trading ex-dividend on November 24, 2015. The quarterly cash dividend is $0.50.

- Suggested Positions -

Long DEC $135 CALL (HII151218C135) entry $2.83

11/17/15 triggered on gap higher at $132.05, trigger was $131.75
Option Format: symbol-year-month-day-call-strike


Lam Research Corp. - LRCX - close: 78.43 change: +0.67

Stop Loss: 73.85
Target(s): To Be Determined
Current Option Gain/Loss: - 6.1%
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:
11/18/15: LRCX is back above short-term resistance at the $78.00 level. Hopefully this time LRCX will see some follow through higher.

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

11/12/15 LRCX closes below short-term support at $76.00
11/03/15 new stop @ 73.85
10/30/15 triggered @ $76.25
Option Format: symbol-year-month-day-call-strike




PUT Play Updates

Cummins Inc. - CMI - close: 98.35 change: +1.43

Stop Loss: 101.05
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.0 million
Entry on November -- at $---.--
Listed on November 17, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: Yes, see below

Comments:
11/18/15: The stock market's widespread rally today helped fuel a bounce in shares of CMI. The stock added +1.4% but shares remain below key resistance at the $100.00 level. Our suggested entry point to buy puts is at $97.30.

Trade Description: November 17, 2015:
Shares of CMI are in a bear market. The current down trend shows no signs of slowing. The stock is down -32% year to date.

CMI is in the industrial goods sector. According to the company, "Cummins Inc., a global power leader, is a corporation of complementary business units that design, manufacture, distribute and service diesel and natural gas engines and related technologies, including fuel systems, controls, air handling, filtration, emission solutions and electrical power generation systems. Headquartered in Columbus, Indiana, (USA) Cummins currently employs approximately 54,600 people worldwide and serves customers in approximately 190 countries and territories through a network of approximately 600 company-owned and independent distributor locations and approximately 7,200 dealer locations. Cummins earned $1.65 billion on sales of $19.2 billion in 2014."

CMI reported its Q2 results on July 28th. The company beat estimates on both the top and bottom line. Yet the post-earnings rally quickly faded. Shares were already in a down trend and investors used the rally to sell. Unfortunately, the earnings picture has taken a dramatic turn for the worse.

Business conditions deteriorated in the third quarter. Wall Street was expecting CMI to report earnings of $2.59 a share on revenues of $4.92 billion. The company delivered earnings of $2.14 a share. Revenues fell -5.5% to $4.62 billion. Management lowered their 2015 guidance and said they would start laying off up to 2,000 people.

The stock crashed to new multi-year lows the next day (see chart). A bearish note from Morgan Stanley didn't help either. A team of analysts at Morgan Stanley cut their rating on CMI to a "sell" and slashed their price target down to $79. Here is an excerpt from the Morgan Stanley note:

We believe CMI is facing three major headwinds that will drive share price underperformance: 1) The secular growth story within the Components business is dissipating - as developed markets shift regulatory focus from emissions to fuel economy, we expect CMI's Emissions Solutions revenue growth to converge with production; this represents a $0.35 EPS headwind. 2) The NAFTA Engine business is likely to suffer from market share erosion - as per our analysis on pages 4-6, we calculate $0.40-0.60 EPS risk associated with incremental Ford, Freightliner, and PACCAR vertical integration. 3) Consensus forecasts do not yet reflect the full impact of a NAFTA truck industry downturn - based on ACT's outlook, we see $0.40-0.65 EPS risk associated with cyclical decline in the NA truck market. While the negative reaction to today's 3Q miss and 2015e guide-down implies increasing awareness of cyclical risk, our bearish call focuses more on the impediments to secular growth and market share. (source)
A couple of weeks later, on November 10th, CMI held their analyst day. The Board of Directors approved another $1 billion stock buyback program to replace the previous $1 billion buyback they announced in July 2014. This news didn't help the stock. That is probably because CMI warned that they expect 2016 revenues to be -5% below 2015 (or worse).

I will point out that some investors see CMI as a dividend trade. The stock's decline has boosted the dividend yield on CMI's stock to nearly 4%. We should keep in mind that if the Fed starts raising rates it will put pressure on high-dividend names. Speaking of dividends, shares of CMI should begin trading ex-dividend on November 18th or 20th (I saw two different dates). The quarterly dividend is 97.5 cents a share.

The last few days have seen CMI breakdown below round-number, psychological resistance at the $100.00 level. The oversold bounce has failed to lift CMI back above this key level. We think CMI accelerates lower from here. Last Friday's low was $97.41. Tonight we are suggesting a trigger to buy puts at $97.30.

Trigger @ $97.30

- Suggested Positions -

Buy the 2016 JAN $95 PUT (CMI160115P95)

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