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Daily Newsletter, Tuesday, 12/1/2015

Table of Contents

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

Market Wrap

Economics Ignored

by Jim Brown

Click here to email Jim Brown

Investors were shocked when the ISM Manufacturing number was the lowest since 2009 and the markets recoiled at the number. However, buyers intent on profiting from a normally bullish December bought the dip.

Market Statistics

The markets started off with a bang with the Dow up +172 but reality returned very quickly and he index dropped back to +50 on disappointing economic news. Dip buyers appeared and the indexes began to creep back towards the highs to end where the morning started with a +168 point gain.

The Fed is facing an uphill battle in their quest for a rate hike two weeks from now. The ISM Manufacturing for November fell into contraction territory at 48.6 and the lowest level since 2009. That was down from 50.1 in October and the recent high of 53.5 in June. The last time the Fed hiked rates with the ISM in contraction was 1981 when Reagan was president. The last three rate hike cycles occurred with the ISM over 55 and expanding. If they are truly data dependent, they should be running from a rate hike rather than towards the first hike in nine years.

All of the major components declined with new orders also falling into contraction for the first time. Most of the other components have been in contraction under 50 for several months. The sharp decline in inventories is bad news for Q4 GDP, which will take a sharp hit from an inventory drop.

Analysts were quick to blame the strong dollar, again. The second reason given was weak global demand and the Fed cannot do anything about that. If they do raise rates, the dollar will go higher and that will further slow demand for anything made in America.



The real time GDPNow forecast from the Atlanta Fed is plunging on the recent string of negative economic reports. The GDPNow is the most accurate forecast of the GDP in the market today. After the ISM report this morning, the forecast declined from +1.8% growth to +1.4%. If the Fed is truly data dependent the GDPNow is not the kind of data they want to see ahead of their December meeting.


On the positive side vehicle sales soared to an annualized rate of 18.19 million in November. That compares to 17.2 million in November 2014. This is being called "peak autos" because analysts do not believe sales can increase above this level in the current economy. GM sales rose +1.5%, Ford +0.4%, Fiat Chrysler +3% and Toyota +12.4%. Volkswagen sales fell -24.4% because of the scandal over emissions and the "stop sale" order from regulators. Volkswagen cannot sell any of the cars covered by the EPA probe. Light trucks and SUVs rose from 10.2 million to 10.4 million with autos declining from 8.0 million to 7.8 million. Thank the low gas prices for the increase in truck and SUV sales.

Construction spending for October rose +1.0% after a +0.6% increase in September. Public spending rose +1.4% with private spending up +0.8%. Residential spending rose +1.6% with nonresidential spending at +0.6%. Total spending for October was $1.107 trillion on an annualized rate. Private construction was $802 billion with residential construction at $399 billion. Public construction rose +1.4% to $305 billion. This report was ignored.

The calendar for tomorrow is headlined by the ADP Employment, which will give us a clue for what to expect from the Nonfarm Payrolls on Friday. A strongly positive ADP with a number over 175,000 would suggest a Goldilocks report on Friday around 200,000. The Nonfarm Payrolls will be the last major data point watched by the Fed before they meet on the 15th.

The Fed Beige Book on Wednesday is also important but since the report is produced by the Fed, they already know what it contains. This is an update for investors.

Janet Yellen will speak at the Economics Club on her economic outlook. That should be a directive on her plans for rates. After the ISM she may want to loosen expectations somewhat.


Facebook CEO, Mark Zuckerberg and wife Priscilla announced the birth of their daughter Max. They also announced they planned to give 99% of their Facebook shares to the Chan Zuckerberg Initiative. Chan was Priscilla's last name prior to marriage. The organization will initially focus on personalized education and curing disease. Zuckerberg plans on keeping his majority voting position in Facebook for the "foreseeable future." According to an SEC filing he will donate no more than $1 billion a year over the next three years.

He currently has about $45 billion in Facebook shares. He owns 4 million Class A shares and 419 million Class B shares. The Class B shares are not traded and are worth about $45 billion. The Class A shares were worth $428 million at Tuesday's close. The Class B shares have 10 votes per share compared to 1 vote for Class A shares. Mark controls 57% of the voting rights so he controls the company direction.


Gilead sciences (GILD) saw its shares decline slightly after a Senate committee released the results of an 18-month investigation into drug pricing. The committee said Gilead knew it would put the life saving treatment out of the reach of many people by pricing it at $1,000 a pill. The 144-page report referenced the Hep-C drugs Sovaldi and Harvoni. They reviewed more than 20,000 pages of documentation. An internal Gilead report showed that 24% of insurers would restrict patient access at $75,000 per patient and that would rise to 47% if priced at $90,000. The same presentation said patient-advocacy groups and doctors would be critical of a price over $80,000.

Gilead released a prepared statement saying it disagreed with the committee's conclusions and the company "responsibly and thoughtfully priced" the two drugs. It should be noted that the drugs CURE Hep-C in 98% of the patients that take it. Without the drug, patients are looking at liver transplants and/or death. Gilead said the high price was necessary to provide funds for research and development of new life saving drugs.


Barclays raised the target price on Amazon (AMZN) to $850 after Amazon said the sales of its electronic gadgets more than tripled over the same weekend in 2014. The Fire tablet at $49 was the top-selling product. Sales of the tablet tripled and sales of the Fire TV set-top box rose +600%. Amazon said it has sold millions of Fire tablets and is building millions more to keep up with demand. Amazon claimed the Fire TV device is the number one streaming media player across all retailers. The Amazon Echo was the top selling product costing more than $100. Amazon said "hundreds of thousands" of Kindle E-Readers were sold over the weekend.

Amazon was clearly the retail winner over the weekend with analysts mostly negative on Black Friday sales in the brick and mortar sector.


TerraForm Power (TERP) rallied +33% from a 52-week low after Oppenheimer upgraded the stock to outperform and raised the price target to $10. However, the bigger reason for the move came from David Tepper's Appaloosa Management hedge fund. Tepper complained the move by TerraForm into higher-risk projects was not serving the interests of shareholders. TERP has agreed to buy 523 MW of projects ($922 million) thrown off from the SunEdison (SUNE) acquisition of Vivint Solar (VSLR). The Vivint projects are higher risk than the utility scale assets TERP normally buys. The company also cancelled a deal to buy $3.45 billion in renewable energy assets in Brazil that is was going to acquire from SunEdison. Investors believe the opposition from Tepper could be the push needed to get TERP to cancel the rest of the SunEdison projects. Shares of TERP have been crushed since the deals were announced several months ago.


Powell Industries (POWL) warned after the close it expected full year 2016 earnings to be in the range of $0.65-$1.05 on revenue of $530-$560 million. Analysts were expecting $1.75 and $578 million. Shares fell about 15% in afterhours to $30.


Guidewire Software (GWRE) guided for current quarter earnings of 13-16 cents per share and $94.5-$98.5 million. Analysts were expecting 14 cents and $95.6 million. They also raised guidance for 2016 from 54-63 cents to 57-66 cents on revenue of $410 million. Analysts were expecting 61 cents and $411 million. Shares rose +5% in afterhours to $63.20.


Johnson Controls (JCI) guided for 2016 earnings to $3.70-$3.90 on revenue of $38.6 million. Analysts were expecting $3.82 and $37.39 million. Shares popped at the open but immediately faded to close down 50 cents.


PNM Resources (PNM) shares broke over resistance after the company guided to full year earnings of $1.56-$1.61. Consensus estimates were $1.59 so I really do not see what pushed the stock higher unless investors were worried about an earnings miss.


Cepheid (CPHD) guided for a Q4 loss of 17-19 cents and analysts were expecting a loss of 18 cents. Revenue of $146-$150 million was in line with estimates for $147.4 million. They guided for 2016 revenue in the range of $618-$635 million and estimates were for $619 million so that was an upgrade. Shares lost $2 on the news but recovered more than half before the close.


TD Ameritrade (AMTD) said it was transferring its listing from the NYSE to the Nasdaq effective on Dec 14th. The symbol will remain the same.


The dollar lost some luster after the ISM report and declined from its highs. This allowed silver and gold to trade slightly higher. The Chinese Yuan was accepted by the IMF on Monday to be added to the "Special Drawing Rights" or SDR basket. The addition will take effect next October. The yuan will have an approximately 10.92% weighting. The dollar has a 41.73% weighting, euro 30.93%, yen 8.33% and pound sterling 8.09%. All of those weightings were reduced to accommodate the addition of the yuan and the new weightings will become effective in October.

The SDRs act like a currency reserve asset. There are currently $204.1 billion of SDRs. Countries can buy or sell SDRs and use them as reserve collateral for transacting business. The addition of the yuan will weaken the dollar somewhat when the new weighting takes effect in October.


Treasury yields also collapsed on the ISM numbers. The yield on the ten-year declined -2.84% to 2.15% and a four-week low. The treasury market is showing reduced chances for a rate hike.


Crude prices were mostly unchanged thanks to the drop in the dollar and the OPEC meeting this Friday. Traders are probably waiting for the Wednesday inventories and will then change their holdings ahead of the OPEC decision. In a survey of dealers and traders in the energy sector 100% expected no cut in OPEC production.


Markets

The S&P surge late in the afternoon pushed the index above critical resistance from 2,095 to 2,100. The close at 2,102 was just enough to clear that barrier but stronger resistance remains at 2,116. The markets are normally down on the last day of November for mark to market gyrations but are then positive for the next five days. I hope today's bullish start to December continues to follow those seasonal norms.

The 2,116 resistance was rock solid in early November and late July. December is normally bullish and I do expect that level to be tested. If we do succeed in breaking through I would expect a new high on the S&P before December is over. It may only be a brief trade over 2,128 but I think it will happen. Depending on when/if it happens it could be a trigger for shorts to pile in ahead of an expected January decline.


The Dow surge to 17,895 at the open followed by a drop back to 17,719 only to surge again at the close to 17,885 was remarkable. The shorts got a perfect entry point at downtrend resistance at the open and attempted to capitalize on it. Unfortunately, for them it did not work and that forced a minor short squeeze at the close.

However, if you look at the chart, the Dow stopped exactly at downtrend resistance and just below the resistance highs from early November at 17,964 and 17,977. The next 100 points on the Dow could be difficult but the normal seasonal bullishness could prevail. There is very little stock news and nothing to depress the Dow 30 stocks unless it is a stock specific event that has yet to appear.

Caterpillar was weak after the Chinese PMI came in at a multiyear low suggesting there will not be a surge of orders from China in the near future. Apple just continues to be weak on worries the Q4 sales cycle will disappoint. Apple is expected to sell 76 million iPhones in Q4. News that the watch counters in Apple stores were deserted over the Black Friday weekend were a drag on the stock.

If the Dow makes it over 18,000 the next resistance is 18,100 and then 18,165. If the Dow makes it over 18,000 I would expect it to make a new high because once it gets this close it normally becomes a self fulfilling event. That does not mean it will breakout and sprint for another 1,000 points. It just means we could see a higher print before the end of December.



The Nasdaq Composite closed at 5,156 and right at resistance at 5,160. As I mentioned for the other indexes a move over that high resistance produces a sure bet that we will see a new high over the historic 5,218 close. Once the indexes get this close they normally seal the deal.

Support is now 5,100 and prior resistance.



The Nasdaq 100 ($NDX) closed only ONE point below the historic high close at 4,717 on November 4th. The historic intraday high is 4,737. I believe both will be broken in the days ahead for the same reasons I mentioned earlier. However, the Nasdaq 100 has the potential to move several points higher because of the FANG stocks and the Biotechs. The large cap tech stocks will be favored by the window dressers going into the end of December.


The Russell 2000 stalled at resistance at 1,200 but has closed twice over that level in the last three days. The small caps should continue to be favored for most of December. A higher close on Wednesday could produce some short covering and price chasing as funds struggle to produce gains before the end of December.


I want to remind everyone that the first 5-7 days in December are normally bullish. The next 5-7 days are normally weak as investors restructure their portfolios by taking profits and making their tax loss sales. About the 15th of the month the market normally turns bullish again with the Russell the usual outperformer followed by the big cap techs.

So far this week has gone according to the seasonal norms but two days does not make a trend. We need to plan for the seasonal rally but be prepared for the mid month weakness. I would consider that a short-term buying opportunity.

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Jim Brown

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New Option Plays

Cloud Computing Candidate

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Salesforce.com, Inc. - CRM - close: 81.01 change: +1.32

Stop Loss: $76.65
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 3.8 million
Entry on December -- at $---.--
Listed on December 01, 2015
Time Frame: Exit PRIOR to February option expiration
New Positions: Yes, see below

Company Description

Trade Description:
Cloud computing stocks continue to capture investor imaginations and their investment dollars. Founded in 1999 and headquartered in San Francisco, Salesforce.com has become a huge player in the cloud computing industry. The stock has shown significant strength with shares up +36% year to date.

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

CRM's revenues have been consistently growing in the mid +20% range the last few quarters. Their Q4 revenues were up +26%. Q1 revenues were +23%. Q2 revenues, announced in August, were a bit better at +23.5% and management raised their Q3 and 2016 guidance.

Their most recent earnings report was announced on November 18th. Q3 earnings beat estimates at $0.21 a share. Revenues grew +23.7% to $1.71 billion, just ahead of estimates. Management continued to provide an optimistic outlook and raised both their 2016 and 2017 guidance above analysts' estimates.

Shares gapped open higher the next day following its Q3 results and improved guidance. Since then the stock has slowly consolidated lower with very little selling pressure. The point & figure chart is bullish and has seen its price target rise from $85 to $98. Meanwhile Wall Street is bullish too. Multiple firms have upgraded their price targets on CRM with recent price targets at $87, $93, and $96.

We like today's bounce and how CRM has broken the very short-term trend of lower highs. Tonight we are suggesting a trigger to buy calls at $81.35. Our time frame is several weeks. CRM reports earnings in February. We are listing the February calls.

Trigger @ $81.35

- Suggested Positions -

Buy the FEB $85 CALL (CRM160219C85) current ask $2.69
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

Holiday Cheer On Wall Street

by James Brown

Click here to email James Brown

Editor's Note:

Seasonal trends normally produce a rally in early December. This year is off to a good start. The U.S. market delivered widespread gains for the first trading day of the month.

CLVS and ITW both hit our entry triggers today.

Tonight we have updated several stop losses.


Current Portfolio:


CALL Play Updates

ABIOMED, Inc. - ABMD - close: 83.84 change: +2.27

Stop Loss: 79.75
Target(s): To Be Determined
Current Option Gain/Loss: -47.4%
Average Daily Volume = 841 thousand
Entry on November 27 at $83.20
Listed on November 24, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: see below

Comments:
12/01/15: ABMD was a strong performer in today's widespread market bounce. The stock surged +2.7% after traders bought the dip this morning near its 10-dma and the $81.00 level. Unfortunately our call option did not seem to participate. The option will likely catch up if ABMD can breakout past short-term resistance near $85.00 soon.

Tonight we are updating the stop loss to $79.75.

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.

*small positions to limit risk* - Suggested Positions -

Long JAN $90 CALL (ABMD160115C90) entry $3.80

12/01/15 new stop @ 79.75
11/27/15 triggered @ $83.20
Option Format: symbol-year-month-day-call-strike


Alkermes Plc - ALKS - close: 72.88 change: -0.48

Stop Loss: 70.85
Target(s): To Be Determined
Current Option Gain/Loss: -85.7%
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:
12/01/15: Now I'm really starting to worry about our ALKS trade. Shares underperformed the market today with a -0.65% decline. ALKS did bounce off its intraday low ($71.29) but the relative weakness is worrisome. We only have three weeks left on our December calls.

Tonight we are moving the stop loss to $70.85. 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

12/01/15 new stop @ 70.85
11/17/15 triggered @ $75.25
Option Format: symbol-year-month-day-call-strike


Clovis Oncology - CLVS - close: 32.05 change: +0.60

Stop Loss: 27.75
Target(s): To Be Determined
Current Option Gain/Loss: -13.8%
Average Daily Volume = 1.4 million
Entry on December 01 at $32.55
Listed on November 28, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: see below

Comments:
12/01/15: CLVS delivered a strong performance. Shares fared better than the major market indices and its peers in the biotech industry thanks to a +1.9% gain on Tuesday. Our trigger to buy calls was hit at $32.55.

CLVS did see a late day pullback from its intraday highs. Readers may want to wait for a new rally above $32.50 before initiating positions.

Trade Description: November 28, 2015:
After a -70% plunge all the bad news might be priced in for this biotech stock.

CLVS is in the healthcare sector. According to the company, "Clovis Oncology is a biopharmaceutical company focused on acquiring, developing and commercializing cancer treatments in the United States, Europe and other international markets. Our product development programs target specific subsets of cancer, and we seek to simultaneously develop, with partners, companion diagnostics that direct our product candidates to the patients most likely to benefit from their use. We believe this approach to personalized medicine - to deliver the right drug to the right patient at the right time - represents the future of cancer therapy."

The company has three product candidates in their pipeline. They are rociletinib, rucaparib, and lucitanib. Right now the market is reacting to news on its rociletinib clinical trials, where the drug is being tested on non-small-cell lung cancer.

Several days ago the company issued an update on their Rociletinib NDA filing. CLVS held their regularly scheduled mid-cycle communication meeting with the U.S. Food and Drug Administration (FDA). The current data on the Rociletinib clinical trials was not good enough. The FDA is asking for more data to prove the treatment's efficacy. This will likely push back the time frame on any approval. Investors were expecting a potential approval in the March-April 2016 time frame.

The delay in Rociletinib approval is a serious setback. Rival biotech firm AstraZeneca just got FDA approval for a competing drug, Tagrisso. By the time Rociletinib is approved (if it's approved), it will face serious competition from an already established treatment.

CLVS is a perfect example of why biotech stocks can be high-risk trades. On November 13, 2015 the stock closed at $99.43. The next trading day, Nov. 16th, shares gapped down at $29.27 and closed near $30. The stock traded down to $24.50 on November 23rd and started to reverse higher. CLVS' stock is now up three days in a row.

The current rally could be a combination of short covering and investors bargain hunting. It has been a full two weeks since the sell-off. If investors were going to sell they probably did so already. We think this rebound has a lot further to go but make no mistake CLVS is still a higher-risk trade. Tonight we are suggesting a trigger to buy calls at $32.55.

- Suggested Positions -

Long JAN $35 CALL (CLVS160115C35) entry $2.90

12/01/15 triggered @ $32.55
Option Format: symbol-year-month-day-call-strike


Global Payments Inc. - GPN - close: 71.09 change: +0.24

Stop Loss: 69.65
Target(s): To Be Determined
Current Option Gain/Loss: -15.6%
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:
12/01/15: GPN dipped to $70.53 before bouncing. The intraday rebound is disappointing with GPN only gaining +0.3% by the close versus a +1.0% gain in the S&P 500. I am suggesting a rally above $71.30 before considering new bullish positions (if you do launch new positions I suggest January or February calls).

Tonight we are moving the stop loss up to $69.65

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

12/01/15 new stop @ 69.65
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: 133.75 change: +2.83

Stop Loss: 129.75
Target(s): To Be Determined
Current Option Gain/Loss: -19.3%
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:
12/01/15: HII just erased yesterday's decline and outperformed its peers with a +2.1% gain on Tuesday. This bounce looks like a new entry point to buy calls. However, if you're starting positions now I suggest January calls. December options expire in three weeks.

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


Illinois Tool Works Inc. - ITW - close: 94.16 change: +0.18

Stop Loss: 89.85
Target(s): To Be Determined
Current Option Gain/Loss: -17.1%
Average Daily Volume = 1.7 million
Entry on December 01 at $94.30
Listed on November 30, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: see below

Comments:
12/01/15: Our new trade on ITW is open. The plan was to buy calls at $94.25 but our trade opened on the gap higher this morning at $94.30. ITW rallied to $95.00 and reversed but traders bought the dip midday.

The late afternoon high was $94.25. Readers may want to wait for a rise above $94.25 before initiating positions.

Trade Description: November 30, 2015:
The stock market has delivered a pretty good bounce over the last few weeks. The S&P 500 index is up +10% from its late September low. Industrial stocks have fared even better. Shares of ITW are up +14% from their late September low and they look poised to breakout to new five-month highs.

ITW is in the industrial goods sector. According to the company, "ITW is a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $14.5 billion in 2014. The Company's seven industry-leading segments leverage the unique ITW Business Model to drive solid growth with best-in-class margins and returns in markets where highly innovative, customer-focused solutions are required. ITW has nearly 50,000 dedicated colleagues in operations around the world who thrive in the company's unique decentralized and entrepreneurial culture."

ITW has had a rough time this year. The stock peaked at round-number, psychological resistance near $100 in the first quarter of 2015. Then a series of disappointing revenue numbers and overall weakness in the industrial sector weighed on ITW's stock price.

The company tends to beat Wall Street's earnings estimate but they have been missing the revenue estimates. Revenues have declined the last three quarters in a row. Yet the stock found a bottom in the August-September time frame anyway. Now ITW's stock in a bullish trend of higher lows and higher highs.

Their most recent earnings report was October 21st. Q3 earnings were up +9% from a year ago. However, if you back out negative currency headwinds their earnings growth was +18%. ITW said their operating margin was up 180 basis points to a record 22.7%.

The company is restructuring while also facing headwinds with a strong dollar. Yet investors seem to be looking past these struggles. The stock soared following its Q3 earnings report. The rally has carried ITW back above its 200-dma. Now it's poised to breakout past short-term resistance near $94.00. Tonight we are suggesting a trigger to buy calls at $94.25.

FYI: ITW could get a boost this week. The company is holding its annual investor day on December 4th. The three-hour presentation starts at 9:00 a.m. eastern time.

- Suggested Positions -

Long JAN $95 CALL (ITW160115C95) entry $1.75

12/01/15 triggered on gap open at $94.30, trigger was $94.25
Option Format: symbol-year-month-day-call-strike


Lennox Intl. Inc. - LII - close: 137.79 change: +1.87

Stop Loss: 134.75
Target(s): To Be Determined
Current Option Gain/Loss: -23.8%
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:
12/01/15: Great news! LII did not see any follow through on yesterday's potential bearish reversal. LII bounced off its 20-dma again and erased yesterday's decline with a +1.3% gain today.

Tonight we are raising the stop loss up to $134.75. If you're looking for an entry point consider waiting for a new high above $138.60.

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

12/01/15 new stop @ 134.75
11/23/15 triggered @ $137.25
Option Format: symbol-year-month-day-call-strike


Lam Research Corp. - LRCX - close: 79.59 change: +1.39

Stop Loss: 76.40
Target(s): To Be Determined
Current Option Gain/Loss: -24.2%
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:
12/01/15: Semiconductor stocks displayed relative strength today with the SOX index up +1.38%. LRCX outpaced its peers with a +1.77% surge to new four-month highs.

Tonight we are moving our stop loss up to $76.40. 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

12/01/15 new stop @ 76.40
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: 191.68 change: -1.81

Stop Loss: 188.90
Target(s): To Be Determined
Current Option Gain/Loss: -24.4%
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:
12/01/15: ROP did not participate in the market's broad-based rally today. Instead shares sank toward short-term support near $190. The good news is that traders bought the dip near this level and ROP was starting to bounce this afternoon. I am suggesting a rise above $192.15 as another entry point to buy calls.

Tonight we are moving the stop loss up to $188.90.

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

12/01/15 new stop @ 188.90
11/24/15 triggered @ $192.66
Option Format: symbol-year-month-day-call-strike


Snap-on Inc. - SNA - close: 173.47 change: +1.31

Stop Loss: 167.40
Target(s): To Be Determined
Current Option Gain/Loss: -13.5%
Average Daily Volume = 407 thousand
Entry on November 30 at $172.46
Listed on November 28, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: see below

Comments:
12/01/15: SNA added +0.7% marking its fifth gain in a row. These are new all-time highs for the stock. Readers may want to start adjusting their stop loss higher.

Trade Description: November 28, 2015:
How many car brands can you think of? Every year automobile makers deliver new models designed to be new and improved. Every year cars get more and more complicated. That means more diagnostic and specialty tools to repair them. This trend is driving organic growth for SNA.

SNA is in the industrial goods sector. According to the company, "Snap-on Incorporated is a leading global innovator, manufacturer and marketer of tools, equipment, diagnostics, repair information and systems solutions for professional users performing critical tasks. Products and services include hand and power tools, tool storage, diagnostics software, information and management systems, shop equipment and other solutions for vehicle dealerships and repair centers, as well as for customers in industries, including aviation and aerospace, agriculture, construction, government and military, mining, natural resources, power generation and technical education. Snap-on also derives income from various financing programs to facilitate the sales of its products. Products and services are sold through the company's franchisee, company-direct, distributor and internet channels. Founded in 1920, Snap-on is a $3.3 billion, S&P 500 company headquartered in Kenosha, Wisconsin."

The company has beaten Wall Street earnings estimates the last four quarters in a row. The revenue number has not been as strong. SNA does get a decent chunk of sales outside the U.S. so the strong dollar does have an impact.

SNA's most recent earnings report was October 22nd. They delivered their Q3 results with earnings of $1.98 a share. That was a +12.5% improvement from a year ago and above expectations. Revenues were only up +1.9% to $821.5 million. However, organic sales were up +7.3%. Their full-year 2015 revenues are expected to rise +3.5% but that is expected to jump to 7% in 2016.

Shares of SNA popped on the earnings report in spite of the revenue miss. Investors have been buying the dips since the October low. Now SNA has broken through resistance near $170.00 to close at all-time highs. The point & figure chart is bullish and forecasting at $207 target.

Traders bought the dip on Friday near $170.00. That's exactly what we want to see. Old resistance should be new support. The high on Friday was $171.91. Tonight we are suggesting a trigger to buy calls at $172.25.

- Suggested Positions -

Long JAN $180 CALL (SNA160115C180) entry $1.85

11/30/15 triggered on gap open at $172.46, suggested entry was $172.25
Option Format: symbol-year-month-day-call-strike




PUT Play Updates

Bunge Limited - BG - close: 65.91 change: -0.70

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:
12/01/15: BG did not participate in the market's widespread rally today. That's great news if you're bearish on the stock. Shares underperformed with a -1.0% decline. The intraday low was $65.71. 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