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Daily Newsletter, Wednesday, 11/25/2015

Table of Contents

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

Market Wrap

A Quiet Holiday Week

by Keene Little

Click here to email Keene Little
A holiday-shortened week tends to be bullish and while this week hasn't exactly been bullish it's at least held onto recent gains, which can be considered bullish. We'll have to get through this week before we'll have a better sense about what this week's consolidation means in the larger pattern.

Today's Market Stats

Happy Thanksgiving! While this is a U.S. holiday that celebrates the fall harvest by the brave (but some would say not too bright) Pilgrims after they landed on our shores in current-day Massachusetts, the Canadians also celebrate their thanksgiving on this day. Even if you do not have a national holiday of thanksgiving, it's a perfect day to sit and reflect on those things you're thankful for. Reflecting on what you're grateful for makes you a happier person for it.

This holiday-shortened week has been very quiet, which was not unexpected, and thanks to the market save Tuesday morning (following the negative reaction to the news about the shot-down Russian jet) the market hasn't been negative this week. It's been a neutral week, except for a more bullish RUT, and the only question now is whether this week's consolidation is a bullish continuation pattern or instead a bearing topping pattern. As I'll show later, even the more bullish RUT actually presented us with a bearish setup by the end of today. But I could easily argue either direction from here and considering Friday's half-day session will likely also be a quiet session, we'll probably need to wait until next week before we get some more clues as to what's next.

There were several economic reports this morning as Thursday's and Friday's reports were brought forward. There was nothing market-moving presented this morning and while there was a brief negative reaction in the pre-market futures, they were lifted back up at the market's open (another sign from the market handlers that there will be no selling allowed this week). Durable goods orders bumped higher than expected (+3.0% vs. +1.5%) but removing the volatile transportation sector left it as expected (+0.5%). Michigan Sentiment came in a bit lower than expected, 91.3 vs. 93.1. A relatively small bump in oil inventories helped crude rally today.

Economic reports

Before getting into my regular charts I wanted to help set the tone of the market vs. what we should be watching for. It's easy to get caught up in the bullishness of the market and if you're feeling bullish you're not alone. The market's rally off the August/September lows has driven bullish sentiment to extreme highs, as can be seen on the Sentix Sentiment chart below (from Sentix.de). Whenever the sentiment level gets above 0.3, especially if it reaches 0.4, it provides a warning that the stock market's rally is overheated and that it's done a good job sucking in bulls near what is likely to be a top in the market (when the rally runs out of buyers it creates a top). It is currently at 0.442, which is the highest reading since the end of 2010. These high sentiment readings don't tell us the market is ready to reverse now but instead simply provide a warning.

Sentix Sentiment, November 20, 2015

Another sign of excessive bullishness can be seen on the Rydex chart below (provided by Tom McClellan). This compares the SPX against the Rydex Nova assets, which is a fund that seeks to achieve 150% of the S&P 500 index. When investors are feeling bullish about the stock market's potential they use this fund to leverage the play. As you can see on the chart, the last two peaks prior to the current one were at the end of 2014, which has been followed by essentially a flat year, and then the peak in May 2015, which was the high of the year. The assets in this fund are now higher than they were at the November 3rd peak in SPX. Since the September low it's been a very fast climb for assets held in the Nova fund, which indicates a strong bullish sentiment and one has to wonder if this is telling us the rally is about to peak.

Rydex Nova Assets, November 20, 2015, chart courtesy mcoscillator.com

Keep in mind that the stock market's holding up near its all-time highs, along with the extreme bullish sentiment, is in the face of a global economic slowdown, which the U.S. will not be immune to. In fact there are many signs our economy has been slowing for at least two quarters and in hindsight we could see the recognition that the recession has already started. Using employment growth is not a good indicator since it generally peaks with the stock market, which typically peaks about six months ahead of a recession and if we use the May highs as the market peak then we are at the 6-month mark.

The Baltic Dry Index is a very good indicator for how much products are in demand since so much is transported by ship. After hitting a high in early 2008 this index dropped sharply to a low in late 2008 and has been unable to recover much of that loss. It is now down about 96% from its 2008 high and it has dropped below its late-2008 low, as can be seen on the chart below. It had bumped up to another lower high in August but since then it lost about 60% of its value. We have a stock market back up near its highs and the BDI dropping 60% and now below the lows seen at the last stock market lows in 2008-2009. Think there might be some kind of disconnect between the stock market and reality? At some point, especially with the discussion above, there will be a market correction and I think it's going to be a lot stronger and violent than most believe.

Baltic Dry index, BDI, Weekly chart courtesy Casey Research

There are a couple of factors affecting the BDI price -- supply and demand (as always). With the high rates back in 2007-2008 many ships were built (the boom times were expected to last). The combination of too many ships and a slowdown in demand has killed the index, which has dropped lower for the past four quarters. Last Friday Forbes reported the global shipping industry still has 30% excess capacity. Not a good time to be a ship owner (unless you own oil tankers). The shipping company Maersk ships about 15% of all manufactured goods worldwide and their CEO recently announced plans to lay off about 17% of its global workforce. He said the global economy is slowing faster than most people think. In the meantime most central banks and the IMF continue to report slowing but still positive growth. I think I'd prefer to place my bets with someone who lives in the real world and not academia.

We see additional evidence of global slowing in things like the price of copper and other commodities prices. Copper is down to lows not seen since May 2009. But copper could still drop lower if it follows the commodity index (DJUBS), which has dropped below not only its 2009 low but also its 2001 low. Big international equipment builders, such as Caterpillar (CAT) have been telling us equipment sales have been slowing drastically (CAT's sales are down 16% from a year ago and have been slowing for the past three years). Europe is rapidly slowing and of course that has the ECB promising to do more of "whatever it takes" and rather than worry about a slowing economy and weaker earnings we have a stock market much more interested in more intravenous drugs from the cabal, I mean central banks. The longer the distortions from central bank activity continue the stronger will be the counter-reaction when it occurs. Ask any drug addict and they'll tell you that coming off drugs is a bitch and now we've got the Fed promising to start squeezing off the drug supply.

The market's love of printed money and the big push into riskier assets in search of higher yields has created a monster known affectionately to us as the stock market, which is close to probing all-time highs instead of lows with commodities. But while the indexes are holding near their all-time highs, a look under the hood tells us a different story. Price is always the final arbiter since that's how we make and lose our money. But while the outside of the car looks all shiny on the used-car lot with a 'For Sale' sign on it, the engine is leaking oil and showing us many other signs of aging. The chart below shows SPX vs. 52-week highs in the middle and then at the bottom is chart of the advancing-declining stocks.

S&P 500 index vs. 52-week highs and Advancing-Declining stocks, Daily chart

Over the past year the number of new 52-week highs has been steadily deteriorating, a sign of lack of participation by stocks in the rally -- more and more stocks are succumbing to selling pressure while SPX is held high (some would say through manipulation through buying of futures and the index itself, including the SPY). Even now as the market pushes back up toward the November 3rd high you can see the lower number of stocks hitting 52-week highs. Likewise, the bottom chart shows the number of advancing-declining stocks has deteriorated since early October. Like sentiment, this is not a timing tool but it does tell you when it's better to be defensive rather than aggressive about the long side. Combined with high bullish sentiment I think we have a very vulnerable market right now but how long that could continue is anyone's guess.

OK, onto the regular charts, starting with the SPX weekly chart. It shows this week's dragonfly doji at resistance, which is its broken uptrend line form October 2011 - October 2014 (dark bold green) and the top of its parallel up-channel for its rally from 2009 (lighter bold green). Those two lines cross this week near 2095 (last week's high, on Friday, was 2097 and this week's high, on Tuesday, was just above 2095. It's too difficult to tell from this week's price action what will follow but a red candle next week would leave a candlestick reversal pattern so that's what the bulls need to avoid. If the bulls can close above 2100 it would open the door for a rally up to the 2170 area in December (the projection for the 2nd leg of the 3-wave move up from 2009, where it would equal 162% of the 1st leg). But a drop below the November 16th low near 2019 would indicate we've seen the top.

S&P 500, SPX, Weekly chart

The daily chart below shows the little candles following the spike up on November 18th and the multiple probes of the broken uptrend line from 2011-2014. That's bearish until proven otherwise with a rally above 2100, but then it would need to get above its downtrend line from July-November, near 2011 and its November 3rd high near 2117. There's plenty of overhead above but little in the way of support, which is one reason why I'm reluctant to bet on the upside but watching carefully before getting aggressive on the short side. Another thing the bulls need to see is RSI breaking back above its broken uptrend line from August since a rollover from here would leave a bearish back-test.

S&P 500, SPX, Daily chart

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

Zooming in closer, the 60-min chart below shows the price action around the broken uptrend line from 2011-2014. As I mentioned earlier, I could easily argue for a move up to test the November 3rd high near 2117 since that's also where a 5th wave for the move up from November 16th would equal the 1st wave. But there's plenty of resistance between here and there and it's not hard to argue we've seen a small rolling topping pattern this week, one which will be followed by a stronger breakdown in the days to come.

S&P 500, SPX, 60-min chart

The DOW presents the same picture as SPX -- it's been bumping up against its broken uptrend line from October 2011 - October 2014, near today's high at 17855, and then only slightly higher is its downtrend line from May-November, near 17920. Following that is its November 3rd high at 17978 so I think the DOW needs to break above 18K to prove the bulls remain in control. But from here it could go either way.

Dow Industrials, INDU, Daily chart

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

The Nasdaq has again been working on its March 2000 high near 5132 following the last attempt into the November 3rd high. It's showing a lot of weakness on its oscillators as it tries again and while we can never say never about more rally, this is looking a little dangerous for bulls.

Nasdaq Composite index, COMPQ, Daily chart

Key Levels for NDX:
- bullish above 5163
- bearish below 4960

The RUT is the index that has been relatively stronger this week and it's another sign of bullishness as traders run into the seasonally strong small caps. This week's rally has brought it closer to its broken uptrend line from October 2011 - October 2014, currently near 1204 so there's at least a little more upside potential if that's what it wants to tag before at least pulling back. The high so far is 1198.53 and above 1204 it would then meet resistance at 1213-1215, which includes price-level S/R near 1213 (its March and July 2014 highs, which acted as support in July-August before breaking down from there) and its 200-dma, currently near 1214.50. Above that is the trend line along the highs since October 9th, which will be near 1225 at the beginning of December.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1215
- bearish below 1150

I've been watching the RUT carefully this week because it has a clearer wave count at the moment. There's a way for to look at it as a corrective move (red labels) but it's cleaner to look at it as an impulsive move (green labels) and the leg up from Tuesday morning fits well as the 5th wave of the move up from November 16th. Today it achieved equality with the 1st wave at 1198.46 (with the high at 1198.53) and while I see additional upside potential to the 1205 area on Friday, to reach the top of its parallel up-channel from November 16th, today's close left a setup for a reversal back down on Friday instead. As I mentioned earlier, we might not get a good answer until next week but paradoxically, the RUT's relative strength this week now has it looking the most vulnerable to a downside reversal.

Russel-2000, RUT, 30-min chart

It's a little challenging trying to figure out the short-term squiggles in the bond market and while it looks like rates will be heading lower from here, I can't argue against another pop higher. I see upside potential to about 2.44% for the 10-year (TNX) but I'd be surprised to see higher than that. It could be stuck in a sideways trading range that will take us into early 2016 before dropping lower. I'm showing the possibility for a down-up sequence to finish a sideways triangle before dropping lower in 2016 (potentially down to sub-1% before finally bottoming. This pattern suggests the bond market will remain unsure what the Fed wants to do before finally recognizing that another round of QE is coming.

10-year Yield, TNX, Weekly chart

Since last Friday I've liked the setup on the TRAN for a reversal to the downside. Friday morning's rally produced a small throw-over above the top of an ascending triangle that it's been in since the August low and that made a good finish to the a-b-c-d-e wave count inside the triangle. This triangle fits well as a bearish continuation pattern and suggests a decline will follow. So far the decline this week fits the expectations and the only way to negate the sell signal is with a rally above Friday's high at 8358.

Transportation Index, TRAN, Daily chart

The U.S. dollar has continued to work its way higher in anticipation of a rate hike by the Fed and more QE from the ECB. The euro is a heavy weighting in the dollar index and weakening the euro (with more QE) would strengthen the dollar, which has now made it back up near its March/April 2015 highs (100.78 and 100.27, resp., with today's high at 100.23). I have two price projections based on the wave pattern at 100.16 and 100.88 so today's high has it inside my target zone. The weekly chart below shows a modified idea for a sideways consolidation into 2016 before it will be ready for its next rally. It could simply continue higher from here but the daily chart is showing a choppy move higher, which is generally a good indication the move (up) is finishing inside my target zone so that has me looking for a reversal back down. If the dollar does pull back as shown, it would indicate something has changed with the expectation of a rate increase by the Fed. It might coincide with a pullback in Treasury yields.

U.S. Dollar contract, DX, Weekly chart

Gold continues to languish near its July low at 1072, threatening to break support and head lower. But I think it's due for a bounce before heading lower, which is what I'm depicting on its weekly chart below. I haven't seen strong enough evidence yet to tell me I want to start accumulating the shiny metal but I'm hoping that will be in a few months and down around 1000 (maybe 900-ish).

Gold continuous contract, GC, Weekly chart

After achieving two equal legs down from its October 9th high, for an a-b-c pullback correction, it looks like the next leg up could be underway. It's still early and I want to see oil above price-level S/R at 44-45 before feeling a little more bullish. My expectation is for a rally up to about 52 for two equal legs up from August before turning back down in what I believe will be a larger consolidation pattern. Once the consolidation is finished, perhaps by spring 2016, we should then see oil drop further, probably at least down to its January 2009 low near 33. Once this picture changes I'll update my expectations based on those changes. Right now it's a preliminary idea that needs additional price action over the coming months to help solidify.

Oil continuous contract, CL, Daily chart

Conclusion

During a holiday-shortened week, especially with low volume, it's easier for the market to get pushed around (or held still like this week). It makes it hard to use the price action to help discern what the next move will likely be. The major indexes have traded sideways and in a bull market that's usually a bullish consolidation, which suggests another rally leg next week. But we've seen plenty of these sideways consolidations suddenly break down instead (catching too many bulls leaning the wrong way). The RUT has a very interesting setup right here, one which calls for a reversal back down. It might be good for only a pullback correction to its rally from November 16th, but it does suggest caution about the upside.

We have plenty to think about with the market challenging all-time highs while bullish sentiment is at an extreme and market internals are weak. We all know this market can rally a lot further under these conditions and with an end-of-year desire to close the market at/near its highs, there could be just enough manipulation to keep the bears away, even if it doesn't make much headway to the upside. We might see the market go on hold until we get through the nonfarm payrolls report next Friday, which would provide more clues about what the Fed might do later in December. And of course the market could stay on hold until the next FOMC announcement.

The risk is to the downside without a lot of upside potential but we're entering the jolly season and the bulls could still pull a ho-ho-ho on the bears. Trade carefully over the next couple of weeks and in the meantime, enjoy your Thanksgiving day away from the market.

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

Count Your Blessings

by James Brown

Click here to email James Brown

Editor's Note:

No new trades tonight.

The market is closed tomorrow and will only be open half a day on Friday. Trading volume on Friday will be extremely low with most market participants on vacation until Monday.

There will be no newsletter tomorrow night (Thanksgiving).

We will be back this weekend with our normal schedule.


If you are in America, enjoy the holiday.

The current population of the United States is about 319 million. Of that more than 45 million people (14%) are on food stamps (or something similar).

Count your blessings!




In Play Updates and Reviews

Markets Quiet Ahead Of Thanksgiving

by James Brown

Click here to email James Brown

Editor's Note:

Geopolitical worries from yesterday's event between Turkey and Russia seemed to fade a bit today. The U.S. market was quiet. The S&P 500 index traded inside a seven-point range and closed virtually unchanged on the session. Most market participants were already on vacation or preparing for their Thanksgiving holiday.

The U.S. markets are closed tomorrow for Thanksgiving. The stock market will reopen on Friday but will close early (1:00 pm EST).


Current Portfolio:


CALL Play Updates

ABIOMED, Inc. - ABMD - close: 82.08 change: +0.58

Stop Loss: 78.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 841 thousand
Entry on November -- at $---.--
Listed on November 24, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: Yes, see below

Comments:
11/25/15: It was a quiet day for the stock market but ABMD continued to drift higher. Shares gained +0.7%, outperforming the major indices. The intraday high was only $83.02. Our suggested entry point to buy calls is $83.20.

Trade Description: November 24, 2015:
2015 has been a roller coaster ride for ABMD investors. Shares are down -26% from their 2015 highs near $110. However, the stock is still up +114% year to date. After its recent drop in October shares could be poised for another surge.

ABMD is in the healthcare sector. According to the company, "Abiomed is a pioneer and global leader in healthcare technology and innovation, with a mission of RECOVERING HEARTS AND SAVING LIVES. Abiomed CEO, Chairman, and President, Michael R. Minogue, has focused the company's efforts on developing ground-breaking technologies designed to assist or replace the life-sustaining pumping function of the failing heart. The Company's portfolio of products and services offer healthcare professionals an array of choices across a broad clinical spectrum. From the world's first total replacement heart to the World's Smallest Heart Pump, 1/100th the size of the heart with rapid and simple insertion, Abiomed is dedicated to finding ways to bring the most advanced and beneficial technology to patients and physicians."

The big rally in August started with its 2016 Q1 earnings report on August 4th. ABMD beat estimates on both the top and bottom line. Revenues were up +50% from a year ago and management raised their 2016 guidance from $285-295 million to $300-310 million. Analysts were only forecasting $292 million. This report kicked off a rally from $80 to $110, which was really impressive considering the fact that healthcare stocks were retreating lower in August. Then the whole market corrected lower in late August.

By mid to late October it looked like the correction in ABMD was over and shares were back in rally mode. Suddenly that changed after the company reported its Q2 earnings on October 29th. Wall Street was expecting a profit of $0.13 a share on revenues of $74.5 million. ABMD beat estimates. Earnings rose +88% from a year ago to $0.17 a share. Revenues soared +47% to $76.3 million. It was ABMD's fifth quarter in a row of earnings coming in above estimates.

ABMD management raised their 2016 revenue guidance from $300-310 million to $305-315 million. Unfortunately Wall Street had already adjusted their expectations to $310 million. ABMD's bullish outlook was not bullish enough. Traders were worried that ABMD's growth might be slowing down too fast. The stock was crushed with a -30% plunge on October 29th. It closed down -28.5% for the day.

This looks like an overreaction. The company's main product, Impella, still has a lot of growth ahead of it. Analyst estimates suggest that ABMD's Impella sales could hit $1 billion by 2020.

After this post-earnings crash, the stock bounced off round-number support at $70.00 but this rebound stalled a few days later. Shares of ABMD have spent most of November consolidating sideways in the $76.00-83.00 range. The good news is that ABMD looks like it could breakout from this trading range. The point & figure chart has already turned bullish again and is forecasting at $90.00 target.

Tonight we are suggesting a trigger to buy calls at $83.20. I do consider this a more aggressive, higher-risk trade. ABMD is a volatile stock. If we can catch it on the next up swing it could be a big winner for option traders. I would use small positions to limit risk.

Trigger @ $83.20 *small positions to limit risk*

- Suggested Positions -

Buy the JAN $90 CALL (ABMD160115C90)

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


Alkermes Plc - ALKS - close: 74.06 change: -0.20

Stop Loss: 69.75
Target(s): To Be Determined
Current Option Gain/Loss: -63.3%
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:
11/25/15: ALKS briefly traded above round-number resistance at $75.00 but gains faded by the closing bell. The failed rally is worrisome. 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


The Boeing Company - BA - close: 147.43 change: -1.22

Stop Loss: 144.75
Target(s): To Be Determined
Current Option Gain/Loss: -51.1%
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:
11/25/15: It was a disappointing session for shares of BA. The early morning gain failed. Shares reversed lower and spent most of the session bouncing along the $147.40 level.

No new positions at this time.

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


The Walt Disney Company - DIS - close: 118.67 change: +0.72

Stop Loss: 115.85
Target(s): To Be Determined
Current Option Gain/Loss: +7.9%
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:
11/25/15: Traders jumped in to buy the dip in DIS this morning. Shares traded up to $119.34 (+1.1%) but gains faded into the closing bell (+0.6%).

If the broader market declines we could see DIS dip toward technical support at its rising 20-dma near $116.39.

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


Global Payments Inc. - GPN - close: 72.44 change: +0.19

Stop Loss: 68.40
Target(s): To Be Determined
Current Option Gain/Loss: +31.1%
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:
11/25/15: GPN delivered a relatively quiet session. The stock traded inside a 48-cent range today. There is no change from my recent comments. Look for short-term support near $70.00 if the market declines. More conservative traders might want to raise their stop loss again.

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


Huntington Ingalls Industries - HII - close: 132.30 change: -1.55

Stop Loss: 129.75
Target(s): To Be Determined
Current Option Gain/Loss: -22.8%
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:
11/25/15: HII's performance today is troubling. There was virtually no follow through on yesterday's intraday bounce from its 10-dma. HII ran into new resistance near $134.50 this morning and then faded back toward short-term support at the 10-dma.

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


Lennox Intl. Inc. - LII - close: 136.87 change: +0.26

Stop Loss: 132.85
Target(s): To Be Determined
Current Option Gain/Loss: -22.2%
Average Daily Volume = 425 thousand
Entry on November 23 at $137.25
Listed on November 18, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
11/25/15: LII shares saw a spike higher this morning but the rally faded. LII spent most of the day inside a narrow range, drifting sideways. I would wait for another rally above $137.25 before considering bullish positions.

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.

- Suggested Positions -

Long MAR $140 CALL (LII160318C140) entry $6.30

11/23/15 triggered @ $137.25
Option Format: symbol-year-month-day-call-strike


Lam Research Corp. - LRCX - close: 77.28 change: -0.01

Stop Loss: 74.95
Target(s): To Be Determined
Current Option Gain/Loss: -40.9%
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:
11/25/15: The market traded sideways today and LRCX followed suit. Shares closed virtually unchanged on the session.

LRCX should have short-term support at both $75.00 and $76.00. The $78.00-78.65 region is short-term resistance.

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


Roper Technologies - ROP - close: 193.84 change: +1.33

Stop Loss: 186.75
Target(s): To Be Determined
Current Option Gain/Loss: +0.0%
Average Daily Volume = 468 thousand
Entry on November 24 at $192.66
Listed on November 23, 2015
Time Frame: Exit PRIOR to earnings in January
New Positions: see below

Comments:
11/25/15: Bullish analyst comments and a new $215 price target for ROP this morning helped keep the rally alive. Shares of ROP traded up toward $195 intraday before trimming its gains.

More conservative traders may want to raise their stop loss.

Trade Description: November 23, 2015:
The Dow Jones Industrial Average is virtually flat for the year (-0.2%) while ROP is soaring. The stock is up +23% year to date and up +25% from its September lows. The relative strength does not show any signs of slowing down.

ROP is in the industrial goods sector. According to the company, "Roper is a diversified technology company with annual revenues of $3.2 billion. We provide engineered products and solutions for global niche markets, including software information networks, medical, water, energy, and transportation. Our strong operating capabilities enable us to convert end-market potential into profitable growth and cash flow in order to create value for our investors. Roper is a component of the S&P 500, Fortune 1000 and Russell 1000 Indexes." The company operates four major business segments. These are: industrial technology, energy systems and controls, medical and scientific imaging, and RF technology.

The earnings picture has been somewhat mixed this year. Shares of ROP plunged in July when they reported their Q2 results. Q2 earnings beat estimates but revenues missed. Management also lowered their Q3 guidance.

Low expectations may have helped ROP beat Q3 estimates when their results came out on October 26th. Earnings of $1.61 a share beat analysts' estimates by four cents. Revenues were up +0.1% to $886 million. This was actually below expectations but traders didn't seem to care. Adjusted gross margins improved 130 basis points to 60.7% and ROP management upped the low-end of their earnings guidance. Overall ROP is forecasted to show +5% growth in 2015 and see a +10% jump in 2016 earnings. That was enough for investors as shares of ROP soared past resistance to hit new highs following its Q3 report.

The company has been very active on the acquisition front. Recent acquisitions include law firm software company Aderant. They have also purchased Atlas medical and CliniSys. Thus far ROP has spent $1.7 billion on acquisitions this year.

Technically shares have shown significant relative strength. The rally off its September lows has been especially strong. The point & figure chart is bullish and forecasting a long-term target of $273.00. ROP has broken through multiple layers of resistance in the last few weeks. Most of November the stock consolidated sideways in the $184-190 zone. A few days ago ROP found support at its rising 20-dma and then rallied through round-number resistance at $190.00. ROP looks headed for $200 a share if not higher. Tonight we are suggesting a trigger to buy calls at $192.65.

- Suggested Positions -

Long FEB $200 CALL (ROP160219C200) entry $4.10

11/24/15 triggered @ $192.66
Option Format: symbol-year-month-day-call-strike




PUT Play Updates

Bunge Limited - BG - close: 67.77 change: +0.72

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

Comments:
11/25/15: BG dipped toward yesterday's low (about $66.90) and bounced today. We are on the sidelines waiting for a new relative low. If BG doesn't start cooperating by Monday then we'll likely drop it as a candidate. Currently our suggested entry point to buy puts is at $64.85.

Trade Description: November 21, 2015:
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)

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


Cummins Inc. - CMI - close: 99.57 change: +0.89

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:
11/25/15: CMI displayed relative strength on Wednesday with a +0.9% gain. Yet the stock continues to struggle with round-number resistance in the $100.00 area.

We remain on the sidelines waiting for a new relative low. 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