Option Investor
Newsletter

Daily Newsletter, Saturday, 11/21/2015

Table of Contents

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

Market Wrap

Nike Swoosh

by Jim Brown

Click here to email Jim Brown

Friday's rally was brought to you by Nike with a +7 point gain worth about +35 Dow points. Nike announced a dividend increase, $12 billion stock buyback and a 2:1 split to cause the big jump.

Market Statistics

Nike announced a 13% dividend increase to 32 cents and the 14th consecutive year that they increased the dividend. That is not a huge increase or a large dividend but every penny counts. They announced a $12 billion stock buyback to occur over the next four years. That equates to about 15% of the outstanding stock at Thursday's close at $126. That will be slightly less or roughly, 13.3% at Friday's close at $132.63.

Nike also announced its 7th 2:1 split that will occur after the close on December 23rd to holders of record on December 9th. Nike sales are growing at a double digit pace and they expect revenue to rise from the current $30.6 billion a year to $50 billion by 2020.

At Friday's close, Nike shares had a 4.7% weighting in the Dow, which is a price weighted index. The bigger the stock price the higher the weighting. Nike was the sixth largest weighted stock in the index. After the split, their weighting will drop to about 2.7%, which means moves in the stock will have less impact on the Dow. Nike has earnings on December 17th and while I would like to hold positions over the report, that could be dangerous given the recent rebound. All the good news may be priced into the stock.


On the economic front, the Kansas Fed Manufacturing Survey returned to positive territory with a reading of +1. That was up from -1 in the October report. The index has been in negative territory since February with the lowest reading at -13 in May and a post recession low. It has been a long hard uphill climb however, the weakness is not over. The backorder component fell even further into contraction at -17, down from -4 last month. Employment declined from -3 to -8 and new orders fell from +7 to +5. There were more negative components than positive so it was a surprise to see a positive headline number.


The economic calendar for next week is fairly heavy but the GDP report on Tuesday is the only one that could move the market. The two home sales reports, Richmond Fed, Durable Goods and Personal Income & Spending are rarely market movers.


We had an active week for stock split announcements. Ctrip.com, Edwards Lifesciences and Nike all announced 2:1 splits. Maybe this flurry of high profile companies will spur others like ORLY, LMT, PSA, PNRA, PANW, MNST, NOC or even AMZN could get the split bug.

For the full calendar click here.


The earnings cycle is slowing significantly but there are still some reporters. Foot Locker (FL) reported earnings of $1.00 that beat estimates for 94 cents. Sales rose +3.6% to $1.79 billion and slightly beating estimates for $1.78 billion. Same store sales rose a strong +8.7% and easily beating estimates for 6.3%. Shares rallied +6% on the news even after a $2 fade from the highs.


Another stock with low expectations was Abercrombie & Fitch (ANF). The company reported earnings of 48 cents compared to estimates for 22 cents. That was a really low bar for the company to hit. Revenue rose +3.6% to $878.6 million and beating estimates for $862.8 million. All the gains came from the Hollister brand, which accounted for more than half of ANF revenue. Hollister sales rose +3% compared to estimates for a -1.1% decline.

The company warned that Q4 would be flat because of slow foot traffic and high promotions. The CEO said declining mall traffic was a problem for all retailers. Same store sales at the Abercrombie stores declined -5%. Customers complain the men's fashions are "too stodgy" according to the CEO. Shares spiked +25% on the earnings. Can you say "short squeeze?"


Hibbett Sports (HIBB) did a lot better than Dicks Sporting Goods (DKS) in Q4. Hibbett Sports reported earnings of 74 cents compared to estimates for 68 cents. Revenue of $228.3 million missed estimates for $233.4 million but investors did not care. The company gave upbeat full year guidance of $2.87-$2.94 compared to $2.80-$2.90 and the analyst consensus of $2.84. The CEO said the inventory and merchandising strategies have us well positioned for the holidays. It is refreshing to hear a retailer not whine about expectations for a crummy quarter. Hibbett shares rose +16% on the news from a 52-week low. Shorts got squeezed again!


A retailer not spiking higher was Sears Holdings (SHLD). They were scheduled to release earnings on Thursday and it did not happen. Normally when a company fails to report and not announce they are rescheduling it means bad news. The earnings date was listed on multiple websites including Breifing.com. Shares of Sears have declined -10% in the last two days.


Ross Stores (ROST) reported earnings of 53 cents that beat estimates for 50 cents. Revenue of $3.78 billion beat estimates for $2.76 billion. The company guided to full year earnings of $2.45-$2.48. However, they guided for the current quarter at 60-63 cents and that was below the consensus at 64 cents. Analysts were somewhat upbeat about Ross suggesting that the quarter may be tough only for a certain group of retailers. Shares spiked 10% on the news.


Nimble Storage (NMBL) reported a loss of 14 cents but that was much worse than the estimates for a loss of 6 cents. Revenue rose +36% to $80.7 million but also missed estimates by about $7 million. The company guided lower for Q4 with revenue in the range of $87-$90 million and analysts were expecting $99.2 million. The company guided for a loss of 11-13 cents and analysts were expecting a breakeven. Nimble shares fell -51%. Ouch!


Mentor Graphics (MENT) fell -36% after the company reported decent earnings in line with estimates but warned of serious problems. For Q4 the company is guiding for earnings of 47 cents on sales of $336 million. Analysts were expecting 97 cents on $439 million in sales. That would be a -23% decline in sales and -57% decline in earnings. The CEO said the flurry of mergers in the chip sector was reducing the number of customers to a few very large companies.


The earnings calendar for next week is very light with Hewlett Packard headlining on Tuesday. Both of the new HP companies (HPE, HPQ) will report and earnings are expected to be about 51 and 45 cents respectively.

Tuesday will see some more retailers confess with CHS, TIF, DSW, BURL and GES. Deere (DE) closes the earnings cycle on Wednesday. The only material company on Friday is Russian energy company Lukoil (LUKOY). It is a $33 billion dollar company with volume of about 70,000 ADS shares per day. I do not trust the numbers and I doubt many others do either.


Yelp (YELP) rallied +11% after it released a survey showing 64% of Americans plan to shop at local businesses this holiday season. That rises to 69% for those between the ages of 18-34. That is exactly the age group that uses Yelp's business review service to decide where to shop and eat.

Last week Yelp reported earnings that beat on both metrics and said they saw a 22% jump in monthly unique visitors to 89 million. They also saw a 40% increase in page views and a 36% increase in local advertising revenue. Yelp is a current long position in Premier Investor.


Things are not going well for Chipotle Mexican Grill (CMG). Fresh off an E-coli scare in Oregon a couple weeks ago the CDC reported 45 new cases in six states including New York, Minnesota and Ohio. Obviously the problem was not related to some locally grown produce in Oregon. The CDC was never able to find the contaminated food in Oregon but they were looking at locally sourced ingredients. Now it appears this could be in a common ingredient that is shipped to all stores from the main distribution center like jalapenos or cheese. Those ingredients will now undergo a stringent examination but we may never know what caused it. Shares fell -12% on the news. They are now down -$220 since the $757 high in mid October. That is really painful. Fortunately, for us there is probably a buying opportunity in our not too distant future. Once they figure out what is causing the problem it will be replaced and life will go on. I plan to own CMG when that happens.


Tesla (TSLA) said it was voluntarily recalling all Model S cars (90,000) to check the seat belts. The company said it recently found a Model S in Europe where the front seatbelt was improperly attached. The car was not involved in an accident and there were no injuries. However, a seatbelt in this condition would not provide "full protection" in a crash.

Tesla is recalling the cars as a "proactive and precautionary measure." The company has examined more than 3,000 cars to date and the car in Europe is the only one with the improper attachment. Despite the potential for that car to be the only one with the error, they are going to recall the fleet for an inspection. Owners will get a letter asking them to stop by a service center for a visual inspection. Tesla said the cost of the recall was inconsequential since it was a visual inspection only and the fix was a simple removal and reattachment if any problems were located. Shares recovered from a -$9 drop to end with a -$1.79 loss.

Tesla is ramping up the Autopilot software team and advertising for software engineers with no prior car experience required. Elon Musk is personally interviewing the candidates. If you are interested in working directly for Musk the email address is in the tweets below.



The potential Pfizer (PFE) acquisition of Allergan (AGN) is getting closer to reality. The expected acquisition price is in the range of $370-$380 per Allergan share ($150 billion) with Friday's close at $312. Pfizer is negotiating for a 2-3% breakup fee, which could be as high as $4.5 billion. If the acquisition were completed Pfizer would move its headquarters to Ireland and reduce its taxes significantly. With the IRS negative on these inversions since September 2014, there are a lot of regulatory hurdles to cross. I would not rush out and try to buy the May 2016 $325 calls just yet. They are $24 and the devil is in the details in getting something like this completed. However, $375 is a long way from $312 so there is plenty of reward for the risk tolerant.


Crude oil flirted with $40 all week and the expiring December contract dipped to $38.99 at the close on an order imbalance but that is not reality. The January futures contract, which becomes the front month on Monday, closed at $41.46. There will be a rapid adjustment in price early next week to account for all the traders moving into that contract.

Inventories only rose +300,000 barrels last week to 487.3 million and only 4.6 million away from an 80 year high. However, the refinery maintenance cycle is nearly over and utilization rose to 90.3% and the highest level since summer. Refiner inputs rose to 16.08 million barrels per day and the highest level since summer. U.S. production declined -3,000 bpd from an 8 week high the prior week. There are still a record number of tankers waiting to unload in Houston so the inventory levels are going higher in the weeks ahead.


Active rigs declined -10 to 757 with oil rigs accounting for the entire drop. Gas rigs remained level at 193. Oil rigs declined to 564 and more than a ten-year low. Total active rigs were 1,929 the same week in 2014. That represents a drop of -1,172 rigs in a year. In theory U.S. production should be slowing but increases in technology are allowing drillers to maintain and in some situations even increase production. The Saudi Arabian oil minister must be suicidal.


Markets

The markets had their worst week of the year the prior week and the best week of the year last week. Volatility has definitely returned. The second week of November lived up to its historical trend with a bearish performance and the third week did as well with the bullish performance. Next week is typically bullish as well so let's hope the seasonal trend continues.


Unfortunately, strong weeks with more than a 3% gain typically are followed by some profit taking. With a little luck, maybe the seasonal trend will overcome the urge to take profits.

The challenge we have now is the triple levels of resistance at 2113-2116 and again at 2,132. After the big rebound from 1,872 to dead stop at 2,116 we did have a textbook retracement of -38%. In theory that should have allowed investors to take profits and establish new positions ahead of the seasonally bullish period. The +3.3% rebound last week began to slow on Thursday and Friday. The S&P closed -8 points off its intraday high but it was still a good day and a good way to end the week. It was option expiration and that always creates some volatility. Volume was light for an expiration Friday at 6.8 billion shares.

If we can move over the Friday high at 2,097 maybe we can find some traction to make a good run at that resistance band. However, if Monday's trading is lackluster we may run out of week before we can win that resistance battle. Monday and maybe Tuesday are the only decent volume days of the week. Wednesday will be a ghost town and Friday even more desolate. Any material moves will have to come early in the week otherwise it will be difficult to break through that resistance on low volume.


The Dow is going to have a challenge next week. The big gains last week came from upgrades on Apple, news from Nike, Home Depot and Walmart earnings, Disney and the Star Wars hype and UnitedHealth talking about dropping out of Obamacare because they cannot make any money.

Each of those events caused big one-day gains in the individual stocks that probably will not be repeated next week. Except for Disney, everything else is now old news. There may be some new headlines on other stocks but with earnings over and everyone leaving for the holiday the news flow will be really slow.

Since the Dow is only a 30 stock index it needs some decent moves in some individual stocks in order to keep the rally alive. I would be thrilled to see some other components step up and show some gains but it is hard to imagine what they would be. Most of those stocks have already used up their headlines during the earnings cycle.

Obviously, there is nothing keeping the various components from creeping slowly higher on their own but nearly half were negative on Friday when the Dow was up +102 at its peak.

We just need to trade what the market gives us and hope for a flurry of unassisted gains.

The Dow peaked at 17,977 in early November and then hovered at the 17,920 level for a week before rolling over. I warned at the time it looked like a distribution phase with volume moderate and mostly negative. Now that the profit taking has run its course, it will be interesting to see if we struggle at 18,000 again this time around. The 18,000 level is purely psychological with real resistance from 18,100 to 18,165. Getting over 18,000 is just the first hurdle.



The Nasdaq posted a +3.6% gain for the week and closed just over the 5,100 resistance level. However, the Nasdaq only closed -8 points off its intraday high with a +31 point gain. The big cap tech stocks are again leading the charge higher. The Nasdaq 100 ($NDX) is only 33 points below its historic high close of 4,719 and -51 points below its intraday high at 4,737. The NDX is showing very strong relative strength and could be our hope for lifting the market over the next couple weeks.

FactSet pointed out that Amazon and Google have been responsible for adding 478 points to the Nasdaq 100 in 2015. That is three tickers, AMZN, GOOG, GOOGL. The Nasdaq 100 index has only gained +419 points for the year. If you exclude those three stocks along with Facebook and Netflix the Nasdaq 100 would be down -5% for the year. This will eventually end badly but probably not until next year.

With Goldman Sachs putting a new target on Apple at $163, Netflix apparently heading for a new high over $130 and Amazon in its favorite quarter the big caps are where it the action is. I hope that continues to be true.

The Nasdaq Composite has serious resistance at 5,160 and that would be the target on any continued rally.




The Russell 2000 small caps continue to lag with only a +2.5% gain last week. There are multiple resistance levels just overhead at 1,194 and 1,200. The most important one is 1,200 and that is 25 points away or +2.1%. That would be a good week under normal circumstances. The small caps are supposed to be strong in the last two weeks of November and middle of December. We really need the seasonal trend to kick into gear or the small caps could be a weight on the broader market.


One factor holding the small caps back is the disparity between the growth stocks and the value stocks. There are two Russell ETFs. The one everyone recognizes is the IWM or Russell 2000 Growth. The other one is the IWN or Russell 2000 Value. Note in the chart below that they traded more or less in tandem until the middle of September. After the late September crash, the value stocks have been lagging significantly. For the year, the growth stocks are up +6.27% and the value stocks are down -3.78%. Most of that disparity came in just the last three months.

We need the value sector to catch fire but the next two months are probably not going to catch up. Fund managers are dying for growth to resurrect their performance for the year. The Dow is dead flat at 0.0% gain for the year and the S&P has only gained +1.47%. Most fund managers were well below those benchmarks. The Russell 2000 is down -2.45% for the year. The fund managers need the next four weeks before the Fed meeting to be robust in hopes of ending the year with a gain in their portfolios. Normally they would do that with the small caps but as I outlined above the Nasdaq big caps are leading the market higher. How long that will last is the $64 question.


I have no prediction for next week. If the seasonal trend holds, the week should be bullish. Honestly, I am worried about that resistance on the S&P and Dow. It would be far too easy for the indexes to creep up to that level and hold there for the rest of the year as they did for the six-months prior to September. The rest of the world is ready to add stimulus and should the Fed hike rates the sharply rising dollar is going to cause even more pain for the majority of the S&P-500 companies.

However, there is a strategy that gets long last week or Monday of next week and then sells on Black Friday because the first week of December is negative more often than not. The strategy wins more than it loses but only by a small margin. I would not recommend it. Since 1987, the Dow has posted gains in 22 of 28 years between next Friday's close and the end of December. The average gain was only +1.2% so do not expect too much in December.

Since 1950, December has gained an average of +1.7% to make it the best month of the year for the S&P and Russell, second best for the Dow and Nasdaq. Small caps tend to outperform in the middle of the month.

The recent flurry of terrorist activities is likely to continue and there is a really good chance of some of it happening in the USA. I seriously doubt the market will ignore a major event in the U.S. the way it did with the recent events in France, Beirut, Egypt and probably Mali. As I write this Belgium is under martial law with the subways halted and everyone has been told to remain indoors.

The defenders of peace have to be vigilant 24 hours, 7 days a week, 52 weeks a year. They need to be right in every decision every day. The terrorists only need to be right once. The increased police presence will only delay the attacks until the pressure has been relaxed.

The U.S. is far too open a society and it makes in inviting target. I believe this will be a cloud over the U.S. markets for the rest of the year. I hope I am wrong and we continue higher in the weeks ahead.


Random Thoughts


This is why you should not short low dollar biotech stocks. Joe Campbell was a trader with an account worth about $37,000. He had shorted Kalobios Pharmaceuticals (KBIO) a stock trading for about $2. He went to bed on Wednesday with $37,000 in his account and a short position in KBIO. The company had said it was winding down operations because it was running out of cash while developing two cancer drugs.

After a long office meeting the next day a buddy texted Joe and asking if he was ok since he had been short KBIO. Unfortunately, he was not.

Overnight it was announced that Martin Shkrell, the CEO of Turing Pharmaceuticals had gained control of a majority of the shares of KBIO. The stock rocketed from $2 to $20 and Joe's account turned from +$37,000 to a -$106,000 margin call. Campbell started a GoFundMe account hoping to get some donations from traders having experienced similar circumstances in the past. After 3 days, he closed it after receiving $5,310 in donations but lots of nasty comments from people who thought he should not be begging for money and basically telling him to take a hike.



Small biotech stocks are explosions waiting to happen. You never know when there will be an announcement that either takes them to zero or makes them a hero. Please do not attempt to short low dollar biotechs. It is like playing with dynamite and they can blow up your account and your net worth as well. Use options where the risk is limited to the amount you paid for the put or call.


The Baltic Dry Shipping Index ($BDI) hit a record low on Friday. The index represents the rates being quoted to charter a ship to transport a dry commodity from port A to port B. Hitting a record low means there is an excessive number of empty ships without cargoes that are bidding on available loads. It also means there is not going to be a rebound in the Asian economy over the next several months because these cargoes are booked well in advance in order to have a ship at the port when the cargo is ready to be picked up. The decline in commodity prices will continue until the Baltic Index begins to rebound and indicate an increase in shipping activity.

The Maersk Line cut 4,000 jobs and cancelled orders for new ships while delaying delivery on others. The parent A.P. Moller-Maersk reported a -48% decline in quarterly profits. "It is a bloodbath" claimed an owner of 18 dry bulk ships. "I have been in the business for 25 years and never seen it this bad."

The Commodity Index hit a new 13-year low on Friday and is only 20 cents away from a 16-year low. There is no light at the end of this tunnel.




Germany received 4.37 billion euros in bids for two-year notes at a record yield of -0.38%. That means you have to pay Germany 0.38% to hold your money for two years. Negative bonds are the fastest growing asset class in Europe with about 30% of European sovereign bonds trading with negative yields. The ECB QE program has purchased 1.1 trillion euros since the program started in March at the rate of 60 billion a month. Mario Draghi is set to increase the spending to do "whatever it takes" in December to stimulate the European economy. If he raises the rate of purchases there are fears that sovereign bonds will become scarce and that is driving down the yields.


The Syrian refugee problem is making dozens of headlines every day. We know for a fact that Syrians are trying to sneak into the country. Five with forged Greek passports were arrested in Honduras earlier in the week with maps on how to get into the USA.

On Saturday, two Pakistani men and a Syrian woman were arrested in Honduras near the Nicaraguan border headed towards the USA.

On Thursday a Syrian woman with a forged Greek passport was arrested in Costa Rica after she arrived by plane from Peru.

In Paraguay a Syrian man, traveling with a stolen Greek passport was arrested on Wednesday.

Apparently, it is easy to get to South America with forged documents and then head north.

Six Middle Eastern men were captured with smugglers in southern Arizona last Monday. Five were Pakistani and one Afghan. On the same day, two groups of Syrians were taken into custody at the port of entry in Laredo while trying to gain entrance into the U.S. with fake passports.

The Border Patrol openly admits they only catch a fraction of the people crossing the border illegally. They have admitted more than once that they find discarded Quran's and prayer rugs along the trails that the smugglers use to infiltrate the border. Having those on your person when stopped in the U.S. would immediately identify you as a Muslim rather than a Mexican. Anyone that does not understand that terrorists are walking among us is not paying attention.

The vast majority of refugees trying to gain lawful entry into the U.S. through the president's program are women, children and elderly people. The number is about 70% according to the administration. However, out of 10,000 entrants in this first program, expected to be upgraded to 75,000, there are bound to be a few sympathizers or worse. ISIS has already warned they have infiltrated the refugee horde. They warned over a year ago they were going to create the horde and send them to overrun Europe and they definitely accomplished their goal.

The U.S. is a compassionate nation as is Europe. We always open our gates to refugees from numerous countries and conflicts. However, in a war, and ISIS declared war on us, you have to discover your enemies weaknesses and exploit them. That is exactly what they are doing in Europe and are trying to do to the USA. To terrorists, compassion is a weakness to exploit.

Here is the Syrian refugee problem explained in very simple terms. If there are 10,000 M&Ms in a bowl and only ten have poison that will kill you, how many M&Ms would you eat?



The end of the Affordable Care Act may be in sight. UnitedHealth (UNH) said last week that it would lose $425 million or 26 cents a share from plans sold into the Affordable Care Act exchanges. The company said it was "evaluating the viability of the insurance exchange product segment and will determine during the first half of 2016 to what extent it can continue to serve the public exchange markets in 2017." UnitedHealth has already pulled back on marketing its exchange products, as open enrollment is currently underway for plans that take effect in 2016.

Other insurers have also been warning of similar problems in their exchange products. Even with premiums doubling and deductibles averaging $3,500 to $5,000 depending on the plan, the companies are still losing money. Anthem, Cigna and Humana have already warned they were losing money on the ACA plans. Mizuho Securities said, "We can expect other participants to guide to the same experience and expect this to impact the managed care group." And, "We expect UnitedHealth and others to exit the public exchanges for 2017 if they cannot breakeven in the first half of 2016. The 2017 plan programs are sold in the last half of 2016. The UnitedHealth CEO said, "We cannot sustain these losses. We cannot subsidize a marketplace that does not appear to be sustaining itself."

This is a huge turnaround for UnitedHealth. They were the company that provided major support for the program when it was being constructed.

UnitedHealth provided the statistics Democratic members of Congress used to sell "bending the cost curve" of medical care.

UnitedHealth conceived of the idea of the insurance co-ops in the first place that would "save an estimated $540 billion in federal spending over 10 years."

UnitedHealth was instrumental in directing Congress toward which types of mandated coverage the ACA would provide.

UnitedHealth said customers signing up for the ACA tended to use more medical care. They also said that people would sign up for coverage, get the expensive care they needed, then drop their policies. The company said the exchange profile (the age, quality, illness ratio) of the exchanges was negative. In other words, too many sick people with pre existing conditions and not enough well people. They expect it to continue to be negative through next year.


 

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

 

"What we think, or what we know, or what we believe is, in the end, of little consequence. The only consequence is what we do." "



John Ruskin

 


Index Wrap

Quick Recovery Move Followed Prior Sharp Dip

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

I made a point last week that the S&P 500 had retraced 38 percent of its prior gains. That's all the Index gave back before regaining most of its prior gains, making for a bullish 'minimal' pullback so far.

In the sequence of the Fibonacci number series .38 or 38 percent is considered to be a 'minimal' retracement of a prior move; more common and considered 'normal' are percentage retracements of about half/50% of a prior move; sometimes, as much as 62-66% will be seen without the dominant trend reasserting itself. In looking at a stock or a major index and ALL you see is a 1/3 to 38% retracement of a prior move followed by a strong recovery, look for MORE to come.

Moreover, options traders, which had in the week coming into last increased their bearish (put buying) orientation were, as I suggested, looking WRONG on Market direction which was suggested as soon as this past week by the strong gains. Public and non-professional options and stock traders often stay bearish for some time after sharp dips and volatile periods as we've had since the mid-August break.

Suggesting new highs for this move to come as much as anything is that traders are not 'believing' in the rallies much, not yet, as can be seen in my CPRATIO indicator as seen on the SPX or COMP charts. These was NO single day this past week of anything especially close to a bullish sentiment extreme; e.g., daily call to put equities' options ratio (CPRATIO) at or above 1.9/2. A ratio like what I use (call volume divided BY put volume) is simply when CBOE equities' call volume registers TWICE (or greater) daily put volume; conversely said, put volume running half of call volume.

The big cap Nasdaq 100 (NDX) is again nearing or within striking distance of an important historical price milestone at 4816 (NDX Friday Close: 4686) which is the all-time peak in NDX dating from March 2000 if you can believe. I consider it unlikely that NDX gets this close and NOT go to a new all-time high.

[My usual chart highlights for resistance levels are red down arrows; my highlights for support areas are the green up arrows.]

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX) DAILY CHART:

The S&P 500 (SPX) chart is mixed to bullish. Bullish in the strength and then renewed strength in the recovery rally dating from the late-September low and double bottom. A 'mixed' picture in that there's no daily chart pattern suggesting a next up 'leg' above 2130, the top end of a multimonth trading range.

The weekly chart suggests potential for an up leg above 2200, nearing the high end of its bullish uptrend channel. The low 'support' end of SPX's long-term uptrend channel 'held' on dips to 1900-1880. The double bottom low was equally bullish as to future potential per the DAILY chart below.

Near resistance was highlighted last week as 2085-2100 and that's still the case, more so at 2100. Next assumed resistance is at 2135, the prior intraday high. Above 2135 is a guess as to next possible objective. Near support is this week is bumped up to 2050, with anticipated support extending to 2020.

I made a point last week of the bullish implications, in a contrary opinion sense of the dip in trader bullishness in the prior week; it alone almost put me into bullish expectations. The drop in the Relative Strength Index (RSI) to a more 'neutral' mid-range reading was a help in suggesting potential for a renewed advance. That and the relatively shallow pullback!

The S&P 100 (OEX) INDEX DAILY CHART

The big cap S&P 100 (OEX) chart has resumed its bullish advance and potential retest of its prior high at 947. 940 looks like immediate overhead resistance, then the prior top.

Above 940, then 947, if reached, a potential next objective might be to the 960 to 980 area over time, probably not as soon as the upcoming holiday-shortened week.

Near support is highlighted in the 920 area, extending to 912 and a possible emerging up trendline.

I look for a move to new highs in OEX.

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

The Dow 30 (INDU) has had a recovery rally from its 'minimal' 38 percent Fibonacci approximately equal to the much broader based S&P 500. The fact that the Dow also has had a relatively 'shallow' correction is a bullish plus. Moreover, INDU rebounded relatively quickly to above its 200-day moving average. I assume that the Dow has regained long-term upside momentum by continuing to find a support 'floor' at and above its 200-day average.

On the 'mixed' side of technical/chart aspects, the sluggish Dow has further to go than the S&P to break out above ITS prior stair-step highs; starting at the 18350 top, then 18137 on down to 18000. The Dow can tread water above 18000 for a period but might not achieve a decisive upside penetration of 18200 anytime soon; at least not as soon as it might with SPX.

Near resistance is clear at 18000, then is highlighted at 18200, but more precise also to say resistance zone at 18137-18200. Near support comes in around 17600, then at 17200.

I'd maintain bullish strategies on the S&P, I'm less enthused about the narrow price average INDU versus cap weighted and broader S&P. INDU stocks in strong rallies like GE, HD, MCD, MSFT, NKE, TRV and V are still few relative to the overall 30.



NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:

The Nasdaq Composite's (COMP) recent pullback to 4900 resulted to a 'minimal' 38 percent retracement of its prior 600+ point upswing before bullish forces pulled the Index higher again. While volume and price momentum slowed by Friday, ahead of the upcoming shortened trading week, there's favorable potential ahead for a retest of the prior 5163 high, then perhaps on to challenge the brief 5232 top of July.

Historical note: There's yet to be a prolonged period that's taken COMP to above its 5132 high of March 2000. Stay tuned on 1-2 months above this target!

Pivotal near support is at 5000, then to the prior recent low at 4900. Near resistance as already noted, is highlighted at 5163, then at 5232.

Bullishness, in the face of a strong recovery rally and 'minimal' retracement has been low. When this changes to high and prolonged bullishness, I become more wary about how much higher prices can get. See my 'CPRATIO' sentiment indicator at bottom of the COMP chart. The recent CPRATIO low was a strong indicator for/of a bottom.

NASDAQ 100 (NDX); DAILY CHART:

The Nasdaq 100 (NDX) pattern is bullish enough to suggest that this current upthrust could at least test the all-time (March, 2000) peak at 4816. Immediate resistance comes in at 4737 but I see that level being pierced and 4800-4816 being tested as the pivotal resistance.

Near support still seen at 4600, with especially key support that came in around 4500; this dip was important in that it 'showed' support at the low end of the big prior upside price gap. Chart gaps often get 'filled in' later but the LOW end of gaps also often sees support/buying interest coming in there.

I see little to stop the big cap Nasdaq from clearing 4800 for a time but long-term chart resistance is seen around 4850 between now and year-end at least. On a 6-month outlook and a longer-term play of course, a move to 5000 is possible.

The NASDAQ 100 Tracking Stock (QQQ); DAILY CHART:

The Nasdaq 100 tracking stock (QQQ) rebounded from the 110 area, support implied by the low end of an upside price gap formed when prices leaped from below 110 to a 112 low the following trading session. A common bullish pattern is a strong rebound after a prior upside (runaway) 'gap' is 'filled in'; i.e., prices retreat into the non-traded ('blank') price gap area to the point where prices took their leap so to speak.

Support is highlighted at 112, then at 110 where the most recent rally began, after a scant 38% retracement.

Resistance is highlighted at the prior recent 115 high which I think will be tested and possibly pierced. Next resistance is anticipated in the 117 area.

Daily trade volume has declined day over day whereas the On Balance Volume (OBV) line projects higher.

The RUSSELL 2000 (RUT); DAILY CHART:

I wrote last week that The Russell 2000 Index (RUT) "may have settled into a predictable 'trading' zone, fluctuating from 2.5% above, to 5% below its 21-day moving average." As RUT has crossed above key near technical support at the 21-day average, upside potential is suggested to the 1200 area again; perhaps to 1220. I don't anticipate upside fireworks for RUT above 1220.

Near support looks like 1160, extending to the recent bottom in the 1140 area.

Last week I thought there could be a downside penetration of 1140 and follow through selling to 1100 major support. I now see 1140 be solid chart support and 1200-1220, especially 1220 a key resistance area for the balance of November.


HAPPY THANKSGIVING!




New Option Plays

Why Did This Stock Not Participate In The Rally

by James Brown

Click here to email James Brown

Editor's Note:

In addition to tonight's new candidate(s), consider these stocks as possible trading ideas and watch list candidates. Some of these stocks may need to see a break past key support or resistance:

Bullish ideas: LEA, RMD, MMM, TRV, ITW, LOW, MKTX, EA, ROP

Bearish ideas: WBA, APC, WYNN




NEW DIRECTIONAL PUT PLAYS

Bunge Limited - BG - close: 65.52 change: -0.61

Stop Loss: 68.05
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.0 million
Entry on November -- at $---.--
Listed on November 21, 2015
Time Frame: Exit PRIOR January option expiration
New Positions: Yes, see below

Company Description

Trade Description:
BG's business is facing multiple headwinds and the stock has suffered for it. Shares are underperforming the market in a big way with BG down -17% from their late October high. The stock is down -29% from its 2015 highs.

BG is in the consumer goods sector. According to the company, "Bunge Limited (www.bunge.com) is a leading global agribusiness and food company operating in over 40 countries with approximately 35,000 employees. Bunge buys, sells, stores and transports oilseeds and grains to serve customers worldwide; processes oilseeds to make protein meal for animal feed and edible oil products for commercial customers and consumers; produces sugar and ethanol from sugarcane; mills wheat, corn and rice to make ingredients used by food companies; and sells fertilizer in South America. Founded in 1818, the company is headquartered in White Plains, New York."

One of BG's biggest challenges is the strong dollar. This makes American products, including crops and commodities, more expensive overseas. Thus demand from foreign markets has been soft. Currencies issues have also been trouble with BG's business in Brazil, which has a slow economy and a weak currency. Meanwhile in the U.S. farmers are facing a larger than expected harvest for some crops, which will further push prices down.

These troubles are crushing BG's revenues. The company reported better than expected Q1 earnings back in April but revenues were down -19.7% and significantly below Wall Street estimates. Their Q2 results were worse. Analysts expected a profit of $1.36 a share on revenues of $14.59 billion. BG reported Q2 results of $0.50 a share. Revenues were down -35.8% to $10.78 billion. BG's Q3 numbers were not much better. Earnings were $1.24 a share, which missed estimates by 35 cents. Revenues plunged -21% to $10.79 billion, compared to estimates of $12.5 billion.

Naturally analysts have began downgrading their earnings and revenue numbers for BG, which doesn't inspire any confidence in the stock. The point & figure chart has produced a new sell signal that is forecasting at $53.00 target.

Bulls could argue that BG's stock is short-term oversold and due for a bounce. However, the S&P 500 just delivered its best one-week gain of the year and BG did not participate. Friday's intraday low was $65.32. Tonight we are suggesting a trigger to buy puts at $64.85.

Trigger @ $64.85

- Suggested Positions -

Buy the JAN $65 PUT (BG160115P65) current ask $2.25
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

Big Caps Erase The Prior Week's Losses

by James Brown

Click here to email James Brown

Editor's Note:

The S&P 500 index delivered a sharp rebound last week. The bounce was big enough to erase the painful losses the prior week. Airlines, defense stocks, and small caps were outperformers on Friday.

We have updated several stop losses tonight. BA hit our entry trigger on Friday.


Current Portfolio:


CALL Play Updates

Alkermes Plc - ALKS - close: 72.30 change: -0.77

Stop Loss: 69.75
Target(s): To Be Determined
Current Option Gain/Loss: -69.4%
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:
11/21/15: It was a disappointing week if you were bullish on ALKS. Shares tagged new highs on Tuesday but spent the rest of the week drifting lower while the broader market rallied. Shares are in the middle of their $70.00-75.00 trading range.

No new positions at this time.

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

chart:


The Boeing Company - BA - close: 149.40 change: +0.16

Stop Loss: 144.75
Target(s): To Be Determined
Current Option Gain/Loss: -14.5%
Average Daily Volume = 3.8 million
Entry on November 20 at $150.25
Listed on November 19, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: see below

Comments:
11/21/15: Our new trade on BA is open. The rally continued on Friday and BA traded above round-number resistance at $150.00. Shares hit our trigger to buy calls at $150.25. Unfortunately shares failed to close above the $150.00 mark. At this time I would wait for another surge back above $150.25 before considering new bullish positions.

Trade Description: November 19, 2015:
Growing demand for airplanes and rising demand for defense spending to crush ISIS generates a couple of strong tailwinds for BA. The company is involved in both defense and a major player in the commercial airline industry.

BA is in the industrial goods sector. According to the company, "Boeing is the world's largest aerospace company and leading manufacturer of commercial jetliners and defense, space and security systems. A top U.S. exporter, the company supports airlines and U.S. and allied government customers in 150 countries. Boeing products and tailored services include commercial and military aircraft, satellites, weapons, electronic and defense systems, launch systems, advanced information and communication systems, and performance-based logistics and training."

BA's most recent earnings report was October 21st. Wall Street was expecting a profit of $2.20 a share on revenues of $24.78 billion. BA beat estimates on both fronts. Earnings were $2.52 a share. Revenues were up +8.7% to $25.85 billion. The company raised their guidance on both EPS and revenues. Their backlog is almost 5,700 planes valued at more than $425 billion.

The company sees strong demand for the airplane market. On November 4th BA issued a press release stating, "Boeing forecasts airlines in the Middle East will require 3,180 new airplanes over the next 20 years, valued at an estimated $730 billion. 70 percent of the demand is expected to be driven by rapid fleet expansion in the region." Then on November 16th, "Boeing projects the Latin American commercial aviation market will grow at one of the highest rates in the world over the next 20 years. As a result, Boeing forecasts the region's airlines will need 3,050 new airplanes valued at $350 billion."

A couple of days ago two analysts with Canaccord Genuity issued a note suggesting rising interest rates are bullish for BA. Here's what they had to say, "While it is difficult for us to determine exactly when the U.S. will raise its target federal funds rate, we wanted to review again the impact of rising rates has historically had on Boeing and the commercial aerospace cycle. Historically, rising rates have corresponded with strengthening commercial orders and outperformance by both Boeing stock and the broader Aerospace & Defense sector. For example, over the past three significant tightening cycles, commercial transport orders increased by an average of 7% and 140% in the 12 and 24 month time periods after rates started to increase. Similarly, the total commercial backlog also increased over these same periods by an average of 3% and 43%... Not surprising as well, over the past two tightening cycles, BA stock has outperformed the broader market by an average of 19%-20% annually while rates are rising. We agree that with the more diverse backlog today, the health of U.S. airlines is less impactful for the cycle. However, we believe in the aggregate, rising rates in the U.S. are generally a bullish signal for both Boeing and the A&D sector. Note that since 1991, BA stock has outperformed the S&P in 15 of the 24 years, and is on pace to do so again in 2015." (source)

News in late October that BA and project partner Lockheed Martin (LMT) had lost their bid on the Pentagon's long-range strike bomber project to rival Northrop Grumman (NOC) did not seem to have much impact on BA's share price.

On the subject of defense, the terrible attacks in Paris last week have generated new support for additional defense spending to focus on ISIS/ISIL. BA could see additional defense spending contracts from multiple governments as governments bulk up for more action.

Meanwhile shares of BA have been building on a bullish trend of higher lows since the market's correction in August. The bounce off its trend line of support has lifted BA toward major resistance at $150.00. The point & figure chart is bullish and forecasting at $165.00 target. We want to see a breakout past resistance at $150. Tonight we are suggesting a trigger to buy calls at $150.25.

- Suggested Positions -

Long JAN $155 CALL (BA160115C155) entry $2.21

11/20/15 triggered @ $150.25
Option Format: symbol-year-month-day-call-strike

chart:


The Walt Disney Company - DIS - close: 120.07 change: +1.36

Stop Loss: 115.85
Target(s): To Be Determined
Current Option Gain/Loss: +25.0%
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:
11/21/15: The hype for DIS' upcoming Star Wars film is getting even higher, even on Wall Street. New forecasts suggest the move could bring in $2 billion across the global box office. That's not counting all the other Star Wars related sales for merchandise. On Friday it was unveiled that pre-sale tickets for the new Star Wars movie are over $50 million, which is a record. A recent Forbes article is estimating that total sales of all Star Wars-related products from movies, toys, video games, and more could be upwards of $5 billion over the next 12 months.

This excitement for DIS drove the stock to another gain on Friday (+1.1%) and a new three-month high. Shares are now challenging round-number resistance at $120.00. This is a pivot point for DIS. The stock could retreat since it's short-term overbought or it could breakout.

Tonight we are moving our stop loss up to $115.85. No new positions at this time.

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

11/21/15 new stop @ 115.85
11/18/15 triggered @ $117.75
Option Format: symbol-year-month-day-call-strike

chart:


Global Payments Inc. - GPN - close: 71.26 change: -0.01

Stop Loss: 68.40
Target(s): To Be Determined
Current Option Gain/Loss: +0.0%
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:
11/21/15: GPN made it five up days in a row. Friday's -$0.01 decline snapped its winning streak. Shares still tagged new all-time highs on Friday but struggled with the $72.00 level.

If the market dips we should watch for GPN to test the $70.00 level as new support. Tonight we are moving the stop loss up to $68.40.

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

11/21/15 new stop @ 68.40
11/17/15 triggered @ $70.25
Option Format: symbol-year-month-day-call-strike

chart:


Huntington Ingalls Industries - HII - close: 134.52 change: +0.44

Stop Loss: 129.75
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:
11/21/15: The rally in defense stocks continued on Friday. Unfortunately HII underperformed its peers. Shares of HII hit new six-month highs at $136.55 and then retreated nearly erasing all of its gains for the session.

Tonight we are moving our stop loss up to $129.75. No new positions at this time.

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

11/21/15 new stop @ 129.75
11/17/15 triggered on gap higher at $132.05, trigger was $131.75
Option Format: symbol-year-month-day-call-strike

chart:


Lennox Intl. Inc. - LII - close: 136.31 change: -0.19

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

Comments:
11/21/15: LII is still spinning its wheels just under short-term resistance at $137.00. Shares actually hit an intraday high of $137.24 on Friday. Our suggested entry trigger is $137.25. If the market rallies again on Monday we could see LII hit our suggested entry point.

Trade Description: November 18, 2015:
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)

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

chart:


Lam Research Corp. - LRCX - close: 78.38 change: +0.46

Stop Loss: 74.95
Target(s): To Be Determined
Current Option Gain/Loss: -18.2%
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:
11/21/15: LRCX spiked to a new three-month high on Friday but gains faded by the closing bell. On a positive note LRCX does seem to be building on its bullish trend of higher lows. Unfortunately the option is not working for us yet because LRCX's climb has been so slow. Shares need to see some momentum higher.

Tonight we are moving the stop loss up to $74.95. No new 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

11/21/15 new stop @ 74.95
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

chart:




PUT Play Updates

Cummins Inc. - CMI - close: 98.70 change: +0.13

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:
11/21/15: Shares of CMI spiked higher on Friday morning but the rally stalled near round-number resistance at $100.00 and short-term technical resistance at the 10-dma. CMI should reverse lower from here but we want to see some follow through. Wait for a new relative low to launch positions. 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

chart: