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Daily Newsletter, Saturday, 12/5/2015

Table of Contents

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

Market Wrap

Rocky Week!

by Jim Brown

Click here to email Jim Brown

Volatility definitely returned with a vengeance over the last week. Just looking at the summary graphic below you would think the week was tame with the Dow up +49 and the Nasdaq +14. Obviously, that was not the case.

Market Statistics

Friday Statistics

In order for the Dow to close up +49 for the week it had to come back +418 points from the 17,425 low on Thursday. That low was -476 points off of Wednesday's high at 17,901. We say all the time to ignore moves on low volume but the last three days have averaged 7.61 billion shares. Anything close to 8 billion is a heavy volume day.

The Dow rose +56 on Monday, +168 on Tuesday, dropped -159 on Wednesday and -252 on Thursday only to rebound +370 on Friday.

Multiple headlines got the blame for the Thursday decline with Mario Draghi the lead event. When the ECB announced their stimulus decision, it fell short of what analysts and the market expected. The market immediately accelerated to the downside and stops were hit as panic took hold.

It was not that the ECB did not take action. They cut the deposit rate another 10 basis points to -30 basis points. They extended their 60 billion euro per month QE for another six months until March 2017. They also expanded the types of securities available for the program to include state and local bonds.

The markets quickly decided those changes did not live up to the "whatever it takes" claims by Draghi and the rest as they say is history. The dollar crashed and the euro soared.

Fast forward to Friday and the situation reversed. Draghi spoke at the Economic Club and said again there was "no limit on using ECB tools...quickly and without delay" if needed. He said "the ECB had the power to act, the determination to act and the commitment to act." The market exploded higher on his comments.

A moderator at the Economic Club asked him in an interview if the comments in his speech today were meant to offset the negative impact of the comments on Thursday. Draghi replied, "not really, (slight pause) well of course." That produced a good laugh all around and the market moved even higher.

Helping to create a positive atmosphere in the market was the Nonfarm Payrolls. The headline number was a gain of +211,000 jobs. The September and October revisions added +35,000 to push the October payroll gain to +298,000 and the highest since last December.

The unemployment rate remained the same at 5.0%. The labor force rose +273,000 as more people decided to look for jobs. Goods producing companies added +34,000 and companies providing services added +177,000 jobs. Private companies accounted for 197,000 of the new jobs.

Leisure and hospitality added +39,000, healthcare +32,000, retail +31,000, professional and business +27,000 and temporary help declined by -12,000. That decline in temporary was strange given the number of temporary workers employed for the holidays.

Construction added +46,000 thanks to the warmest October on record and its extension into early and mid November. Mining/Energy lost another -11,000 as crude prices fell and commodity prices drop below the cost to produce them.

The negative points were a slower gain in hourly earnings at +0.2% compared to +0.4% in October. Also, the number of people forced to take a part time job because full time employment was unavailable rose from 5.78 million to 6.09 million. The broader U6 unemployment rate rose +0.1% to 9.9%.

Unemployment by category, for men 5%, women 4.7%, teenagers 15.7%, white 4.3%, black or African American 9.4%, Asian 3.9% and Hispanic 6.4%.

The three-month moving average rose to 218,000 and well into the range the Fed is looking for as confirmation of an improving labor market. Yellen said last week that a print of only 100,000 jobs would be enough to maintain the long-term average and allow them to hike rates in December.


The December rate hike is now locked in according to most analysts. The payroll report was sufficiently strong enough to offset declining economics elsewhere and the paltry 1.5% Q4 GDP growth as predicted by the Atlanta Fed. That was up slightly after the stronger than expected Factory Orders on Thursday but declined again on the weak international trade numbers on Friday.


If the Fed does hike rates in December, it will be the first time they hiked with manufacturing in a recession since 1981. The ISM Manufacturing on Tuesday dropped to a post recession low of 48.6 and into contraction. The ISM Services declined -3 points on Thursday to 55.9 and only 2 tenths of a point away from an 18-month low. I do not understand how the Fed can hike rates if they are truly data dependent but analysts are already talking about the next hike and whether it will be March or July 2016.

The calendar for next week is lackluster until the PPI and Retail Sales on Friday. Expectations for producer prices are for a decline of -0.2% after a -0.4% drop in October. There are no signs of any inflation on the horizon. The retail sales are expected to have risen +0.3% in November but after the complaints about the Black Friday weekend I would not be surprised to see that estimate missed.


There were no new split announcements last week.

For the full split calendar click here.


Despite the big market rebound there was very little stock news. The main headlines were Draghi, the Fed meeting and the California terror attack.

Ambarella (AMBA) had a volatile day after announcing decent earnings Thursday night. Unfortunately, the guidance was weak and that weighed on the stock. Shares declined to $53.75 at the open before rebounding to $61.16 at 10:AM. They fell back to $55.50 before rebounding back over $58 and then closing under $57. Traders appeared to be confused as to direction.

Deutsche Bank said Q4 guidance was even weaker than expected. Analysts were expecting weaker numbers because of slow sales at GoPro. The bank lowered its target from $70 to $60. Pacific Crest called the weak guidance a "toe stubbing for sure" but maintained a $77 price target and expectations for 15-20% growth in 2016. That is a far cry from the $125 we saw in July.


Shares of GoPro hit a new post IPO low at $18 after R.W. Baird cut its rating from outperform to neutral with an $18 price target. Piper Jaffray reiterated an underweight rating with a price target of $15.

Ambarella's guidance was in part due to rising inventories of unsold chips. This is directly related to sagging GoPro sales. They recently cut the price on their latest Session camera for the second time in five-months. GoPro has been talking a good game for Q4 but it remains to be seen if the sales will actually happen. Earnings estimates for Q4 and 2016 have been cut twice.


Chipotle Mexican Grill (CMG) warned on Friday that sales and earnings would be down sharply as a result of the E.Coli outbreak. The CDC reported early Friday that the same E.Coli strain had infected people in three additional states. The company said earnings for Q4 would be in the range of $2.45-$2.85 per share and well below the $4.09 expected by analysts. Chipotle expects sales to decline 8-11%. They said sales declined -16% in November after being down -22% in the middle of the month when the CDC reported the outbreak had spread.

The current theory is that the infection is coming from tainted celery since that has also impacted Costco, Target and several other firms. Chipotle announced another $300 million stock buyback in an effort to halt the decline in its shares. Chipotle shares closed the regular session at $560 but fell to $518 after the company warned.


Move over UPS, Amazon is coming. The online retailer announced on Friday it was going to put thousands of Amazon branded trucks on the road in a move to increase shipping capacity and shorten delivery times. Amazon currently uses UPS and FedEx to move their packages and they ship millions of packages a day. That means those shippers have to load, sort, ship, etc those millions of packages from Amazon fulfillment centers.

Amazon is not going to use these trucks to deliver to your door. They will be used to transport merchandise from and to their warehouses and to the various fulfillment centers and shipping companies. Instead of asking UPS to handle all the pickup and sorting you can expect to see Amazon trucks delivering presorted packages to various shippers like UPS and FedEx. This will further reduce their freight costs and lighten the load for the shippers that actually deliver to your door.

Amazon is currently leasing a prior DHL facility in Wilmington Ohio and is flying four Boeing 767 freighters a day to airports in California, Florida and Pennsylvania. The project is code-named Aerosmith and is done in partnership with Air Transport Services Group (ATSG).

Amazon has also patented what it calls "Anticipatory Shipping." Using this process Amazon can start shipping a package to you before you even order it. The program tracks what you and others around you normally buy, what is in your shopping cart and even how long you view certain product pages. By accumulating all those potential orders for one geographic location, Amazon can ship a truckload of those products to the closest shipping point to that location. When the order is actually placed, they slap a label on the box and hand it to a waiting UPS truck. Today those orders are shipped one at a time out of one of the main fulfillment centers. That means they are picked up by UPS and transferred from truck to truck as they cross the country in the UPS system until they get to your area. By prepositioning Amazon trucks with products at UPS hubs in every region they will eliminate that long travel time. This will greatly expand their next day delivery options.

Last year Amazon spent $8.7 billion on shipping. That equates to 9.8% of sales. Amazon ships about 5 million packages on an average day. On Cyber Monday alone they sold more than 40 million items giving you an idea on how many packages they ship in December. Slice Intelligence said Amazon captured 36.1% of all Cyber Monday sales with Best buy second at 5.5% and Walmart 3.8% to round out the top 3.


Ultra Salon (ULTA) jumped +13% after reporting earnings. Revenue rose +22% to $911 million and $31 million over estimates. Earnings of $1.11 beat estimates for $1.05. The company provided in line guidance for Q4 but raised guidance for the full year. Same store sales are expected to rise +10-11%, up from 8-10% in the prior estimate. E-commerce sales are expected to rise +40%. That compares to +56% in Q3. EPS growth is expected to rise in the low 20s percentage range.


Relypsa (RLYP) spiked +7% on rumors Merck (MRK) was planning on making an offer to acquire the company. The initial rumor was later redefined as Relypsa putting itself up for sale in an auction including GlaxoSmithKkine, Galencia, Merck and others. The company just received its first drug approval from the FDA and they need deeper pockets to continue development of other drugs.


Pep Boys and the old guy. Auto parts chain Pep Boys (PBY) now have a new partner. Carl Icahn revealed on Friday he had taken a 12.1% stake in the retailer. Icahn's filing said he was involved in active discussions with the company regarding their strategic alternatives. The company had previously tried to sell itself in the past with no bidders in 2006 and a LBO failed in 2012. Last June, Chairman Bob Hotz, bragged about his progress in growing same store sales, increasing gross margins, shrinking inventories and unlocking the value of their real estate. Icahn bought an auto parts supplier now called Auto Plus in June for $340 million. In a Bloomberg article, Icahn is reportedly trying to get Pep Boys to sell itself to Auto Plus.

The catch in Icahn's plan is that Pep Boys agreed to sell the retail chain to a unit of Bridgestone Corp for $835 million in October. The Bridgestone tender offer is set to expire on January 4th. The tender offer was for $15 in cash and a 23% premium over the stock price at the time. Shares closed at $15.69 on Friday with a 3% gain.


McDonalds (MCD) shares spiked to a new high after the company said there were $38.7 billion in bids for its offering of $6 billion in bonds. The five tranches of bonds from 3-years to 30-years went off at a few basis points over the equivalent treasury yields. For instance, the 10-year commanded a 155 bp premium at 3.7% while the 30-year garnered a 195 bp premium at 4.875%. The company is raising cash to give investors a $10 billion cash payment in 2016. This was announced on November 10th. McDonalds could have easily floated the entire $10 billion but it would have required a larger interest rate and they wanted to keep the price low.


OPEC held their regular production meeting on Friday. After much discussion, they did nothing as was expected. They left the production quota at 30.0 million barrels per day even though they are currently producing over 31.5 mbpd. By this time next year that could rise to 32.5 mbpd if Iran, Iraq and Libya increase production as expected. Some analysts thought they would raise the quota to match their production but they could not even agree on that. OPEC as a cartel is dead until they decide to manage production in order to manage prices. The next meeting is June 2nd. Most analysts believe Saudi Arabia will continue to flood the market with oil until at least the end of 2016.

Crude prices fell to close at $40 and traded briefly under $40 several times last week. Now that the threat of an OPEC production cut is over, we could see a continued decline.


OPEC members cannot afford to cut production. Because they have driven the price so low they need to produce every barrel possible to make up for some of the lost revenue. They are hoping the low prices will not only drive high cost producers out of business but also increase the pace of demand growth because of low gasoline prices. We have already seen that here in the U.S. with truck and SUV sales in November surging ahead of car sales because of low gas prices.

Crude inventories rose +1.2 million barrels to 489.4 million and only 1.5 million below an 80 year high. However, refinery utilization rose sharply to 94.5% from 92.0% the prior week. This is up from 86.0% the first week of October when the fall maintenance was underway. With refining demand so high it could slow the inventory buildup but there is still a flotilla of ships outside Houston waiting to unload.

Lipow Oil Associates said on Friday that 36 energy companies have filed bankruptcy so far in 2015. Sixteen were in Texas, 4 in Colorado, 4 in Delaware and 6 in Canada. They expect more in the months ahead because cash flows have been cut by more than half and drilling activity is still crashing.

The U.S. rig count declined -7 to 737 with oil rigs declining -10 to 545 and another decade low with gas rigs rising +3 from an 18-year low to 192. The surprising drop came in the offshore rigs with a decline of -5 to 25 and more than 60% off their highs.


Markets

The S&P dipped to a three-week low at 2,042 on Thursday causing numerous stop losses to be triggered. The rebound on Friday was frustrating to those who were stopped out because stocks in some cases rebounded back to the highs from earlier in the week.

Despite the +2% rebound on the S&P there is still the problem of another lower high on the 2nd. The S&P touched resistance at 2,104 and rolled over into that two day crash.

The rebound should have everyone guessing about what is going to happen when it returns to that 2100-2105 level. Will it fail again or will the seasonal trend take control and break through that level? The stronger resistance at 2,116 and 2,128 is still in front of us.

I am worried over the lack of market strength. Friday was mostly short covering after payrolls and Mario Draghi's comments. What will drive the market higher next week? If we do fail at resistance again I seriously doubt there will be a corresponding rebound from any major decline.


The Dow was on a roll on Friday with all the heavyweight stocks powering higher. Note in the graphic below that IBM was the only triple digit stock not in the list of leaders. In a price weighted index the higher the stock price the larger the impact on the index. The two stocks with the heaviest weightings were the top two gainers.

This was purely short covering. Goldman dropped -$10 to a five-week low over the prior two days and rebounded nearly $5. That was short covering on expectations for the Fed to hike rates. The rebound stalled at $190 at 1:PM and went sideways the rest of the day.

Like the S&P the Dow bounced off strong resistance on Wednesday and fell sharply. The rebound took it right back almost to that same resistance making Monday a critical test for the Dow.



The Nasdaq support and resistance was nearly picture perfect. Wednesday's opening high broke through resistance momentarily at 5,160 before falling to 5,011 and only 3 points from solid support. The +104 point rebound on Friday to 5,141 took it almost back to where the volatility started.

There were a lot of stocks with major gains as you can see in the winners list below. Apple is not in the list even though it did gain nearly $4 but not enough to make the top 25.

The key for this week will again be that 5,160 resistance. A breakthrough there should continue higher to a new historic high at least on an intraday basis.



The Nasdaq 100 ($NDX) did make a new intraday high by 2 points at 4739.75 at the open on Wednesday. After the -160 point drop from the high to 4,579 the rebound nearly returned to that new high level. The big cap techs quickly recovered their upward momentum after Thursday's crash. The 4,737 level is still the key for this week. A close over that level would be a new high close.


The Russell 2000 led the prior week, along with the Nasdaq big caps but it was crushed in the Thursday meltdown. The Russell recovered the least of the major indexes with only a +1% gain on Friday compared to 2% or more on the other indexes. Support at 1,165 held but now we have to fight the resistance battles at 1,194 and 1,200 all over again. In theory, the next two weeks are the strongest for the Russell. Let's hope the theory proves to be accurate.


I said last week "This will definitely be a week where we need to trade what the market gives us rather than what we want to see." The market provided some uncharacteristic volatility in a week that is normally bullish. However, other than being stopped out of half my positions, the market is poised to retest those resistance highs and the seasonal trend is for a bullish week ahead. It is the week after that is normally rocky.

I am sure everyone is aware that the seasonal trends are just about as accurate as the weather forecast. Over the very long term, they will prove accurate but any given year can produce a significant exception. I said earlier I was worried about the implied market strength. Until the Dow and S&P can break through that downtrend resistance, we are at risk. This will be another week where we need to trade what we see and not what we want to see.

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Random Thoughts


There is a contingent of analysts that believe Draghi's underwhelming list of new ECB stimulus moves on Thursday was purposeful. Draghi needed to under deliver and disappoint the markets to lift the euro, crash the dollar and give the Federal Reserve room to hike rates. If the ECB had come out with some major program, the euro would have crashed and the dollar exploded to new highs. If the Fed hikes rates on the 16th the dollar would have broken out to even higher highs and depressed the euro.

When Draghi under delivered he reset the dollar/euro ratio so a Fed rate hike will not be so devastating to the euro. The reset on the currencies was so strong that his speech on Friday barely had any impact.



On Wednesday Citi cut its weighting for equities in 2016 to neutral. They cited the sharp drop in corporate profits in recent months.

Credit Suisse has long held that equities peak 12-18 months after a peak in margins. It has now been 15 months since the peak in margins.

Citi also said the probability of a recession in 2016 has risen to 65%. "If this were a typical policy cycle after a typical economic cycle, the Fed would have already raised rates 2-3 years ago. Instead, the US recovery is set to enter its seventh year while the European recovery is still embryonic. So in addition to China sneezing, FI markets need to price the longevity of the cycle."

Following Citi by a day JP Morgan warned of a 76% probability of a recession. JPMorgan's Michael Feroli warns that in the past, a low unemployment rate, rising compensation, falling margins, and elevated durables investment have historically signaled an elevated risk that an expansion is nearing its end... and puts the probability of a US recession within 3 years at 76%.


Yellen was asked about Citi's 65% chance of a recession in her Wednesday testimony. She said she does not see the recession risk as "anything close" to 65% but she did not provide a number she thought was more appropriate. She reiterated that the Fed would not hike rates if the committee did not believe the U.S. would enjoy "at least some above-trend growth" that would result in an improved labor market.

Citi also said, "geopolitical risks likely pose the greatest potential to disrupt markets in terms of event risk." And, "There is also the potential for geopolitical risks to intersect with economic fragility in the event of a downturn, amplifying both."


On Wednesday, both Kansas City Southern (KSU) and CSX (CSX) warned that earnings were slowing. The KSU CFO warned Q4 revenue would decline in the "high single-digit" percentage range from year ago levels. The CSX CFO said rail traffic was slowing more than expected and EPS growth was now forecast to be 3%. As recently as October, the company had predicted "mid single digit" earnings growth.

With the Dow fighting overhead resistance and the Dow Transports moving lower, something has got to give. Whenever the two indexes diverge to this extent, the Dow normally loses the battle and follows the transports lower.



 

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

 

"When people see a strong horse and a weak horse, they will naturally want to side with the strong horse. When people of the world look upon the confusion and atheism of the West, they see that Islam is the strong horse."

Osama bin Laden

 

America needs to be the strong horse!
 


Index Wrap

Market Nervousness Still Abounds

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

The major indices held technical/chart support on Thursday's sharp 1-day sell off; e.g., in the 2050 area in the S&P 500 (SPX), in the 5050-5000 zone in the Nasdaq Composite (COMP), and around 4600 in the big cap Nas 100 (NDX). Noted again from last week: "low bullish sentiment/expectations continues to be a bullish plus."

As I also wrote last week: "Suggesting new highs for this move to come, as much as anything, is that traders are not 'believing' in the rallies much, not yet, as can be seen in my CPRATIO sentiment indicator on my SPX and COMP charts." The recent 'bullish' (Thursday) low in my CPRATIO model shows this graphically. An upside break out to new HIGHS is yet to come and may not this month unless the tendency for a December "Santa Claus rally" kicks in. Stay tuned on that ... and, the Fed is due to the holiday party to at least start to take away the proverbial 'punch bowl'.

Good to remember, ahead of 'panic-attacks' and sudden sharp downturns, WHERE support lies. Given the reality of computerized trading, especially in lower volume periods, sell offs can come fast and furious and cause panic selling. In reality and for example you could have been prepared to buy SPX calls when the Index dipped to the 3050 support area, even Closing there.

You didn't need to be watching the Market all day to get into a bullish strategy on the next day's early trading. Of course that was IF you considered that the sell off likely a bear raid so to speak and therefore suggested a bullish positions. Selling puts was a favorite of mine. IF, on the other hand, you believed late in the past week that stocks were about to go into free fall again (fear, panic), you would have been perhaps deer-in-the-headlights paralyzed and froze. Hey, I've been there!

Now this is not to say that the major Indices are going to push on to new highs anytime soon and especially not the Russell 2000 (RUT), but they are mostly rebounding from, and finding buying interest, on sell offs, suggesting that once past end of year-early 2016 jitters, there WILL be a new up leg and a move to new highs. I find it hard to believe that the red hot big cap Nas 100 (NDX) isn't going to pierce its top made back in early-2000. The broad Composite (COMP) has seemingly led the way as COMP just had a monthly Close (5142) above its prior 5132 price peak from March 2000.

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

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX) DAILY CHART:

The S&P 500 (SPX) continues bullish in its pattern as most recently suggested by Index's strong rebound from 2050 support, which quickly regained SPX's 21-day moving average. On moving average (downside) penetrations best to wait a second day to see if there's follow through.

Significant SPX resistance/selling pressures is seen in the 2100-2115 zone, with a pivotal next resistance at prior highs that formed repeatedly around 2135. A decisive upside penetration of 2135 that was sustained would suggest potential to the 2200 area. Word Play: piercing a prior resistance that is 'sustained', is suggested by prior resistance 'becoming' an area of support. Those who missed the break out will buy on the pullback.

Near support is seen around 2050, with fairly strong next support suggested at 2020-2025. A Close below 2000 that wasn't reversed (back to the upside) in the next 1-2 sessions suggests possible SPX downside to 1950.

I noted in my initial 'bottom line' comments the relative 'lack' of strong bullish sentiment during and on the lead up to what have been tradable rallies as seen above by comparing price action with the 'extremes' of my CPRATIO indicator. The most recent example of a dip in this line into my 'oversold-extreme bearishness' zone seen above (green up arrow) exactly preceded Friday's substantial upside rebound to back above support, although still shy of new highs of course. The longer this kind of low-bullishness pattern continues suggests contrary potential to advance.

The S&P 100 (OEX) INDEX DAILY CHART

The S&P 100 (OEX) chart is bullish in the rebound of OEX from a possible up trendline as highlighted on the chart. Because of the current intersection of this trendline, near support is suggested at 915, with substantial next support in the 'milestone' 900 area; 880 is next, and fairly major, support.

We've seen rally potential on pullbacks but not yet the desire of the bulls to bid up prices above the 940-947 zone. A move above the prior highs that found support there on pullbacks would suggest upside to 980 over time.

No change in my view from the past couple of weeks to look for a move to new highs in OEX. I don't anticipate the big cap S&P to stay locked in a trading range in a still-expanding economy. I published a Trader's Corner piece the other day (see 11/30/15) which is a current look at the bullish long-term S&P 500 chart. Bear markets are formed when recessions develop.

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

The Dow 30 (INDU) has bullish potential given its continued rebound and rally tendencies since its bullish 'W' bottom formation that formed over September. The bottom pattern could also be seen as a broad 'V' bottom. That said, where's the 'beef'! Where's the ability for the Dow to punch through its succession of declining stair step highs? Therein lies the question!

INDU has pivotal near resistance in the 18000 area; next resistance comes in at 18200, extending to the prior 18350 high. A move above each of the 3 areas highlighted in the chart suggests potential to and significance for, a move to the NEXT higher resistance.

As anticipated, the Dow held above its 200-day moving average. There was a SINGLE day penetration but I generally discount 1-day forays and instead tend to rely on two consecutive days above or below key chart points as suggesting potential reversals.

I've highlighted initial technical support at 17500 which I also mentioned last week, with next technical/chart support coming in around 17200.

NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:

The Nasdaq Composite (COMP) has a mixed pattern. Near-term you could say there's a potential bearish double top that formed around 5163. Above this comes a next resistance at the summer COMP peak at 5232. If 5230 was pierced, a next target, possible next resistance is 5300.

On bullish upside potential in general and a reason to suspect an eventual further up leg, COMP has been in a very strong uptrend for 7 years. While you could suspect this is pretty long for an expansion, there's no 'rule' about the length of bull markets. There is a long-term uptrend price channel where we can analyze a top area of potential resistance as coming in around 5500 in December.

Near support is suggested at 5050-5000 with pivotal next support at the prior recent 4900 low. 4800 begins fairly major support.

NASDAQ 100 (NDX); DAILY CHART:

The Nasdaq 100 (NDX) resumed a high-level consolidation near prior highs, a pattern suggesting substantial potential for NDX to pierce 4737 and go on to test its all time peak just above 4800; 4816 as noted on the chart dating from March 2000. Just inflation alone should mean there's potential to 5000 over coming months!

Buying interest in NDX as suggested last week did show up at 4600 on the dip and that level is highlighted again as initial support. 4500 is next support which I doubt gets re-challenged anytime soon given the strong rebound from 4500; this after a sizable upside price gap got 'filled in'. This type pattern, the strong buying that showed up, supports why it's said that underlying gaps form underlying support.

As is often the case in very strong uptrends, a correction that even moved the needle on the Relative Strength Index (RSI) down to a 'neutral' mid-range reading as highlighted below, often tends to precede a next rally. The lagging indices are more likely to get 'fully' oversold in terms of my 13-day RSI.

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

The Nasdaq 100 tracking stock (QQQ) dip to the 112 area set up a buying opportunity, certainly short-term, possibly intermediate-term if new highs are seen above 115-116. Near QQQ resistance is highlighted at 115.

A sustained move above 115, with this level 'becoming' subsequent support, is a pattern suggesting 2-3 point upside as a next swing objective; e.g., to 117.

A Close below 112, especially if continued into a second day, would present a more bearish note than I'm anticipating here. Next key support below 112 is likely (again) in the 110 area.

The On Balance Volume (OBV) line is moving sideways to lower which is a minor price/volume bearish divergence.

The RUSSELL 2000 (RUT); DAILY CHART:

The Russell 2000 Index (RUT) is in a meandering 'trading range' which has been somewhat predictable. In recent months RUT has traded within the moving average 'envelope' band highlighted below. Downside volatility was greater than upside as is clear from RUT downswings that fell to 5 percent below the 'centered' 21-day moving average and just half that (2.5%) on rallies to above the average.

RUT has resistance/selling interest showing up in the 1200-1205 area; resistance then extends to 1220. Near support is seen at 1170, then 1160. 1140 begins fairly major support.

A near-term trading range may be between a potential 'maximum' 1160 on the downside and 1220 on the upside.


GOOD TRADING SUCCESS!




New Option Plays

Streaming Toward New Highs

by James Brown

Click here to email James Brown

Editor's Note:

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

Bullish ideas: LMT, RTN, VC, LAD, SWK, DPS, V, ADP, MSCI, FRC, DPZ, BDX, MCD, LOW, HD, MNST, LEA




NEW DIRECTIONAL CALL PLAYS

Netflix, Inc. - NFLX - close: 130.93 change: +4.12

Stop Loss: 119.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 20.5 million
Entry on December -- at $---.--
Listed on December 05, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: Yes, see below

Company Description

Trade Description:
The relative strength in shares of NFLX could accelerate between now and year end. Tonight we are looking at this stock as a bullish momentum trade.

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

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

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

NFLX is one of the market's best performers this year with a +167% gain year to date. Yet NFLX is not invincible. Doubts have been growing about NFLX's ability to keep growing and its rising costs. Their most recent earnings report is a good example.

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

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

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

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

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

The point & figure chart is bullish and forecasting at $148 target.

In summary, the growth story for NFLX seems a little bruised with their missed subscriber numbers. They continue to spend a ton of money on content and expansion. Investors don't seem to care. The consumer trend of switching from traditional cable to streaming services is not going to reverse and that benefits NFLX.

NFLX is showing significant relative strength this year and remains a momentum name. We are adding NFLX as a bullish candidate. We do consider it a higher-risk, more aggressive trade because shares can be so volatile. Tonight we are suggesting a trigger to buy calls at $132.55. I would use small positions to limit risk.

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

Trigger @ $132.55

- Suggested Positions -

Buy the JAN $140 CALL (NFLX160115C140) current ask $4.00
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

Market Surges On Strong Jobs Number

by James Brown

Click here to email James Brown

Editor's Note:

The combination of a strong jobs number and dovish comments from ECB President Draghi helped fuel a very widespread rally on Friday.

Tonight we have updated all of our active stop losses.


Current Portfolio:


CALL Play Updates

Clovis Oncology - CLVS - close: 33.94 change: +0.67

Stop Loss: 29.65
Target(s): To Be Determined
Current Option Gain/Loss: + 0.0%
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:
12/05/15: CLVS experienced some volatility on Friday morning with $1.00 swings in both directions. Eventually the up trend reasserted itself. CLVS ended the day with a +2.0% gain.

Tonight we are adjusting the stop loss up to $29.65.

No new positions at this time.

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

12/05/15 new stop @ 29.65
12/01/15 triggered @ $32.55
Option Format: symbol-year-month-day-call-strike

chart:


Salesforce.com, Inc. - CRM - close: 82.14 change: +2.21

Stop Loss: $78.90
Target(s): To Be Determined
Current Option Gain/Loss: +5.3%
Average Daily Volume = 3.8 million
Entry on December 02 at $81.35
Listed on December 01, 2015
Time Frame: Exit PRIOR to February option expiration
New Positions: see below

Comments:
12/05/15: The market's big bounce on Friday cleared the way for a rally in CRM. Shares surged +2.76% and look poised to breakout to new highs soon. Tonight we are adjusting the stop loss up to $78.90. I would consider new positions in CRM at current levels. More conservative traders might want to wait for a new high first.

Trade Description: December 1, 2015:
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.

- Suggested Positions -

Long FEB $85 CALL (CRM160219C85) entry $2.83

12/05/15 new stop @ 78.90
12/02/15 triggered @ $81.35
Option Format: symbol-year-month-day-call-strike

chart:


Illinois Tool Works Inc. - ITW - close: 94.32 change: +1.96

Stop Loss: 91.45
Target(s): To Be Determined
Current Option Gain/Loss: -22.9%
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:
12/05/15: Traders bought the dip in ITW after shares tested technical support on Thursday. The stock rallied +2.1% on Friday's session and closed back above short-term resistance at $94.00. Further strength on Monday can be used as a bullish entry point. Tonight we are adjusting the stop loss up to $91.45.

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

12/05/15 new stop @ 91.45
12/01/15 triggered on gap open at $94.30, trigger was $94.25
Option Format: symbol-year-month-day-call-strike

chart:


Snap-on Inc. - SNA - close: 173.82 change: +3.32

Stop Loss: 169.40
Target(s): To Be Determined
Current Option Gain/Loss: -18.9%
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:
12/05/15: Friday was a good day for SNA bulls. Shares bounced from support near $170 and managed to erase the Wednesday-Thursday decline. SNA ended the week at a new high. Looking at the intraday chart there appears to be potential short-term resistance at $174.00. Readers may want to wait for a rally above this level before initiating new bullish positions. Tonight we are adjusting the stop loss to $169.40.

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

12/05/15 new stop @ 169.40
11/30/15 triggered on gap open at $172.46, suggested entry was $172.25
Option Format: symbol-year-month-day-call-strike

chart:




PUT Play Updates

American Express Company - AXP - close: 71.10 change: +0.68

Stop Loss: 72.35
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 5.8 million
Entry on December -- at $---.--
Listed on December 03, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: Yes, see below

Comments:
12/05/15: AXP was not immune to the market's widespread bounce on Friday but shares did underperform. The S&P 500 rallied +2.0% while AXP only gained +0.9%. Currently we are looking for a breakdown below the $70.00 level. Our suggested entry point to buy puts is $69.75.

Trade Description: December 3rd, 2015:
Having one of the best known brands in the world is not enough if business turns south. AXP has been struggling, especially after the high-profile loss of its contract with Costco (COST). You may not remember but earlier this year COST and AXP failed to agree on terms to extend their relationship. COST was one of the few big merchants that only took AXP cards and not rival Visa, MasterCard, or Discover card.

AXP is in the financial sector. According to the company, "American Express is a global services company, providing customers with access to products, insights and experiences that enrich lives and build business success." That doesn't tell us much. The company operates through four segments: U.S. Card Services, International Card Services, Global Commercial Services, and Global Network & Merchant Services. The company claims $159 billion in total assets and over 112 million card customers. Their annual revenues are just over $34 billion with net income of $5.89 billion.

The revenue picture for AXP has been tough. The company has missed Wall Street's revenue estimate the last three quarters in a row. AXP's most recent earnings report was October 21st. They delivered their Q3 earnings of $1.24 a share. That missed estimates by seven cents. Revenues were down -1.3% to $8.19 billion, below analysts' estimates at $8.31 billion. AXP management then lowered their 2015 guidance below Wall Street expectations.

Barclays believes that AXP will continue to suffer from strong dollar headwinds in 2016. A Stifel's analyst believes that the impact of the Costco breakup has not been felt yet. Their exclusivity deal doesn't end until March 31, 2016. The impact may not be priced into AXP stock yet. UBS is also bearish and downgraded AXP to a sell in October. AXP has been forecasting +12-15% EPS growth but UBS is estimating AXP growth at +8%.

Technically the stock is in a bear market. AXP is down -25% from its early January 2015 highs. Shares have a bearish trend of lower highs and lower lows. The point & figure chart is bearish and forecasting at $63.00 target. Today AXP dipped toward round-number support at $70.00. A breakdown below this level could be an entry point. Tonight we are suggesting a trigger to buy puts at $69.75.

Trigger @ $69.75

- Suggested Positions -

Buy the JAN $70 PUT (AXP160115P70)

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

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

chart:


Bunge Limited - BG - close: 64.98 change: +0.58

Stop Loss: 67.05
Target(s): To Be Determined
Current Option Gain/Loss: -13.0%
Average Daily Volume = 1.0 million
Entry on December 03 at $64.85
Listed on November 21, 2015
Time Frame: Exit PRIOR January option expiration
New Positions: see below

Comments:
12/05/15: Friday's bounce in BG snapped a five-day losing streak. The stock did underperform, only gaining +0.9% versus the broader market's +2.0% gain. The $66.00 area should be resistance. Readers can watch for a failed rally in this area as a new bearish entry point. Tonight we are adjusting the stop loss down to $67.05.

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.

- Suggested Positions -

Long JAN $65 PUT (BG160115P65) entry $2.30

12/05/15 new stop @ 67.05
12/03/15 triggered @ $64.85
Option Format: symbol-year-month-day-call-strike

chart:


Stericycle, Inc. - SRCL - close: 116.64 change: +3.00

Stop Loss: 120.25
Target(s): To Be Determined
Current Option Gain/Loss: + 2.3%
Average Daily Volume = 941 thousand
Entry on December 03 at $118.07
Listed on December 02, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: see below

Comments:
12/05/15: The market's big bounce on Friday probably fueled some short covering in SRCL. After a large drop on Thursday (-4.3%) shares bounced sharply on Friday (+2.6%). Wait for this rebound to run out of steam before considering new bearish positions. Broken support at $120.00 should be new resistance so we are moving our stop loss down to $120.25.

Trade Description: December 2, 2015:
Wall Street hates to be disappointed. If companies really disappoint their stocks get hammered. That's what happened to shares of SRCL.

SRCL is in the industrial goods sector. According to the company, "Stericycle, Inc., a U.S.-based business-to-business services company operating in 23 countries, is focused on solutions that protect people and brands, promote health and safeguard the environment." Unfortunately that doesn't really tell us much. The company started as a medical waste management service. Now they cover multiple areas including "complex and heavily regulated arenas, including compliance and sustainability waste services, brand protection solutions, and customer contact solutions."

In mid October, just prior to their Q3 earnings report, SRCL was trading near all-time highs in the $150 area. At the time SRCL was up about +14% for the year. On October 22nd SRCL reported their Q3 results. Wall Street was expecting adjusted earnings of $1.18 per share on revenues of $735.4 million.

Management reported unadjusted earnings fell from 96 cents a year ago to 47 cents a share. Their adjusted earnings came in flat (no growth) at $1.08 a share (a 10-cent miss). Revenue growth was +7.6% to $718.6 million, another miss. The company was hit with a perfect storm in the third quarter. Slower business volumes, higher expenses, and negative foreign currency headwinds all impacted their results.

The next trading day (Oct. 23rd) shares of SRCL plunged -25.8% intraday and settled with a -19% loss near $120 a share. The stock has spent the last six weeks trying to recover but investors have been selling the rallies. Now SRCL is starting to breakdown. The company's management offered slightly bullish 2015 and 2016 revenue guidance but traders don't seem to care. Now the point & figure chart is bearish and forecasting at $73.00 target.

The last few days have seen SRCL testing round-number support at $120.00. Today shares displayed relative weakness with a -1.5% decline and a breakdown below support. This sell-off could accelerate. Tonight we are suggesting a trigger to buy puts at $118.40.

- Suggested Positions -

Long JAN $115 PUT (SRCL160115P115) entry $2.20

12/05/15 new stop @ 120.25
12/03/15 triggered on gap down at $118.07, suggested entry was $118.40
Option Format: symbol-year-month-day-call-strike

chart: