Option Investor
Newsletter

Daily Newsletter, Wednesday, 12/9/2015

Table of Contents

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

Market Wrap

Whippy Consolidation

by Keene Little

Click here to email Keene Little
The price action since the November 3rd high has hardly been helpful in figuring out which direction this market wants to go. The choppy whippy up and down price action is more indicative of a market that doesn't know which way to go while waiting for the Fed to announce its rate decision next week. That could mean another week of this chop.

Today's Market Stats

There were no significant economic reports this morning to move the market and tomorrow is not much different. So the market is more or less on its own as it watches for overseas events and continues to worry about what the Fed will do next week (the Fed is currently picking the pedals off the daisy flower, with each one accompanied by "we will raise, we won't raise" and as soon as they pick the last pedal they'll let us know their answer).

The whippy price action since the November 3rd high is forming what could end up being a sideways contracting triangle, which fits well as a bullish continuation pattern, presumably waiting for the Fed to bless the next rally. Even if the initial reaction next week to the Fed's announcement is negative, as it was to the ECB's announcement, a continuation of the sideways chop into next week would be bullish. We have some price levels to watch to the downside to know when it turns more bearish but for the moment the nod goes to the bulls and we'll have to see how and when they can break out of the current log jam.

Working against the stock market is the fact that we're getting a continuous stream of data that tells us the economy has been slowing down and will likely continue to slow. Corporate earnings have been declining, pushing P/E ratios higher and companies are starting to cut dividends, all of which begs the question "how can the markets rally to new highs from here when so many signs point to a slowing economy and worsening earnings?" The answer to that question is simple -- the market only cares about what the central banks can do to continue pumping money directly into the veins of the market. But as we saw with the negative reaction to the ECB's "less than whatever it takes" announcement, it's taking a bigger and bigger drug injection to get the same market high.

It will be interesting to see how the market reacts to the Fed's announcement. No rate increase would be good for international businesses (a rate increase would rally the dollar, which would hurt export business) and for borrowers in general. But it would tell us the Fed believes the economy is strong enough to accommodate a rate increase and that would be considered market positive. I personally believe the Fed is completely out of touch with reality and has economic models that are outdated and proven wrong, but it only matters what the market believes. If the Fed holds rates where they are it would be normally bullish for the stock market but that would mean the Fed believes the slowing economy can't handle a rate increase (especially if they become afraid a rate increase now could be the same error made in the 1930s, prompting a worsening of the depression we're heading for). Therefore holding still on rates could prompt selling. As I've said many times in the past, it will be nice when the Fed is shoved aside as inconsequential to the economy and markets and we can get back to trading more reliable technical and fundamental signals. Hey, I can dream it will happen.

Compounding the difficult in figuring out what the Fed will do is trying to decipher many of the government economic reports. To say the reports are massaged with all kinds of formulas, which change based on the whims of whoever's in charge, would be an understatement. Take the most recent NFP report, which showed relatively strong employment gains. David Stockman pointed out in a recent article that the BLS (Bureau of Labor Statistics) has so many adjustments to the numbers they collect that it's hard to know what the true number is. But even going with their numbers, while they've been showing job growth (I think I saw something like 2 million since 2009), the actual number of hours worked is virtually the same as it was in 2007, which is only marginally higher than the number of total hours worked in 2000 (these numbers come directly from their site).

The increase in total hours since 2000 is +0.08%, which is about as close to zero as you can get. It's a rounding error. In other words, the larger number of jobs that have been created are simply dividing up the same number of total hours worked. Companies have had an incentive to hire more temporary workers and provide fewer hours per employee. Part of the reason is more flexibility for the company and part is because they're trying to avoid the requirements of ObamaCare (which is failing miserably).

A quick summary of what's happening to our economy and corporate profits, and a strong reason to remain very cautious about the upside, is summarized below. As I'll get into with the charts, I'm actually looking for another rally leg but while I see upside potential I think it's very important to understand that there's a lot more downside risk than upside potential from here. Caveat emptor could not be more appropriate here. Hat tip to John Williams for the following list of negatives for the market:

1. Global GDP growth has gone negative for the first time since 2009.
2. Corporate earnings growth has turned negative and has fallen for two consecutive quarters (and is expected to fall again in Q4).
3. S&P 500 net profit margins are steeply declining. According to Tony Sagami, "since 1973, there has been only one 60 bps decline in S&P 500 net profit margin that didn't lead to a recession."
[The current decline is 100 basis points]
4. In October, U.S. imports of goods declined by 6.6 percent on a year-over-year basis.
5. In October, U.S. exports of goods declined by 10.4 percent on a year-over-year basis.
6. U.S. manufacturing is contracting at the fastest pace that we have seen since the last recession.
7. Corporate debt defaults have risen to the highest level that we have seen since the last recession.
8. Credit card numbers that were recently released show that holiday sales have gone negative for the first time since the last recession.
9. The velocity of money in the United States has dropped to the lowest level ever recorded.
10. Of the 93 largest stock market indexes in the entire world, 47 of them (slightly more than half) have already plunged at least 10 percent year to date.
Just like in 2008, other global financial markets are imploding ahead of a U.S. collapse.

Referencing item 3 above, the chart below shows the decline in earnings growth since Q3 2014. The decline in earnings has been 4 quarters in a row and will very likely finish even lower for Q4 2015.

S&P 500 Earnings Growth, Q2 2011 - Q3 2015

The stock market, that has continued to whistle past the graveyard despite this negative trend has ignored the fact that 12-month P/E ratio of the S&P 500 has now climbed to almost 23, which is warning flag that the coming years will very likely be another correction. This is especially troubling since increasing P/E valuations generally occur during a period of rising corporate earnings. In this case earnings have been in decline for over a year but P/E valuations have continued to rise, which is a very dangerous condition (for bulls). This is not a timing tool and as I mentioned above, I'm actually looking for a bit more rally from the market, but the higher this thing goes I think the harder and faster it will fall.

And with that let's get to the charts. The SPX weekly chart shows the pullback from trendline resistance that I have pointing out the past several weeks. The broken uptrend line from 2011-2014 and the top of a previously broken parallel up-channel for the rally from 2009 intersected near 2095 at the end of November and the rollover from the back-test of this area is bearish. A drop below price-level S/R at 2020 and the November 16th low near 2019 would be more bearish. But at the moment the larger price pattern supports the potential for at least a choppy rise higher into the end of the month and possibly into January.

S&P 500, SPX, Weekly chart

The choppy price action since the November 3rd high is bullish following the September-November rally. The bears need to prove they're in control, starting with a decline below 2020. The pullback from December 2nd has been a choppy pattern and one thought as I watch this is that we could get a sideways triangle as price trades in a contracting range through next week. That would then set us up for a Santa Claus rally. So stay cautiously bullish here but don't get caught in a flush to the downside.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2110
- bearish below 2020

The 60-min chart below shows how choppy the price action has been since the November 3rd high, which again is a reason to suspect we're inside a triangle formation (triangles tend to be filled with whippy choppy price action). A sideways triangle would be a common pattern for a 4th wave correction in the rally from August, especially since 4th waves tend to be very choppy. A sideways triangle often leads to the final move of the trend (up in this case) and that's another reason it would be a good setup for the bears once the next rally leg completes (assuming we'll get another rally leg). Notice where this afternoon's rally stopped (highlighted in yellow) -- at its broken uptrend line from November 16 - December 3. A back-test followed by a kiss goodbye with a decline Thursday morning would be potentially bearish if not reversed back up right away.

S&P 500, SPX, 60-min chart

The DOW looks the same as SPX, including the rejection at its broken uptrend line from October 2011 last week. The choppy rally/pullback since the November 16th low could lead to a choppy rise into the end of the month, or into January, as part of an ending diagonal to the upside (to complete the 5th wave in the move up from August). Or it could chop sideways into next week before starting the next rally leg. Not until the bears can break the DOW below its November 16th low at 17210 will the bulls be in trouble. It might be a difficult rally to trade on the long side (whippy sharp reversals might spike traders out of their positions) but so far I'm not seeing enough to suck me on the short side.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 17,980
- bearish below 17,210

NDX also has the same pattern as the blue chips and unless the bears break it down below the November 16th low at 4486 I'm looking for a continuation of the rally. Whether it chops its way higher from here or goes sideways for another week and then higher, I could argue for either. As we head into opex next week, which is typically bullish, it's another reason not to turn bearish here.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4740
- bearish below 4486

The RUT has been one of the indexes that is not the same as the blue chips and techs. It's been weaker and has been a reason not to trust the upside. But today's decline had it testing a trend line along the lows from October 14th, as well as a price projection at 1146 for two equal legs down from November 6th (for a possible a-b-c sideways correction). Looking at the intraday pattern I also see a 5-wave move down from December 2nd, which suggests we should be looking for at least a bounce correction before heading lower. A break below 1140 would be more bearish but for the moment, considering the potential for a rally up to the 1215 area by the end of the month (if the rest of the market rallies), I like the setup for a bounce/rally since a stop can be kept close by.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1166
- bearish below 1140

In addition to the weakness in the RUT, it's the TRAN that has been one of the bigger bearish caution flags on the field. Following the nice setup into the November 20th high, with the little throw-over finish to the ascending triangle pattern, it's been a strong decline that retraced the triangle in a hurry, which is the typical move and why I like trading triangles. But now it's looking like it could be setting up at least a bounce correction following what appears to be a 5-wave move down from November 20th. We could see it drop a little lower, maybe even down to its August low at 7452, before setting up a bounce but with today's long-legged doji at price-level S/R near 7650 all it takes now is a positive day on Thursday to give us a buy signal. The bounce pattern, assuming we'll get it, will then provide clues as to whether it will likely be just a bounce correction or instead something more bullish.

Transportation Index, TRAN, Daily chart

Where the U.S. dollar will head after next week's Fed announcement is the big question but for now it's looking like the dollar will head lower. Last week it reached a price target zone near 100.50, with a high at 100.60, and the strong reversal back down this week is a good indication the leg up from October 15th has completed. It's possible we'll see the dollar bounce back up to at least a minor new high (to give us a 5-wave move up from August 24th) but that new high would then likely be followed by another pullback to the current area before heading higher again. Until I see something like that occur over the next several weeks I'm sticking with my expectation for another drop down to the bottom of its trading range near 94 before starting back up again in a large (in time) sideways consolidation before starting another rally to new highs next year.

U.S. Dollar contract, DX, Weekly chart

Following gold's low on December 3rd and the strong spike up to the high the next day we've seen a sharp pullback and choppy price action following that. It leaves the short-term pattern questionable but at the moment I continue to lean long the shiny metal. I don't think it will be any more bullish than just a correction to the decline from October, with an upside target zone near 1142, as shown on its weekly chart below. A break of its downtrend line from 2012, which will be near price-level S/R at 1142 around mid-January, would be a lot more bullish, in which case I'd then start thinking about a stronger rally up to the 1230 area, if not 1285. That potential would become more obvious if we see a strong impulsive move up from here. As long as gold stays above its December 3rd low near 1045 it remains bullish. And if it drops below Monday's low at 1065 it could lead to a test of that 1045 low.

Gold continuous contract, GC, Weekly chart

Oil's decline from October 9th has formed a descending wedge, which fits as an ending diagonal c-wave in an a-b-c decline from last May's high. Oil could drop further to the trend line along the lows from last January, currently near 34.40, or between here and there is a price projection at 35.57, which is where the c-wave of the move down from May would be 62% of the a-wave. But at the moment the ending diagonal can be considered complete at any time and therefore playing the short side is now the riskier play. I depict a rally that will break the downtrend line from June, currently near 44.20, because I think a larger consolidation pattern off the January low calls for another run up to at least the $60 area (if not $70) before dropping lower next year (perhaps timed with the dollar's rally next year). A decline below 34 would turn oil very bearish.

Oil continuous contract, CL, Daily chart

Other than some unemployment data and export/import pricing there will not be much in the way of economic reports tomorrow. Friday we'll get some PPI numbers, retail sales business inventories and then Michigan Sentiment. Unless there are some big unexpected swings in the numbers we probably won't see much of a reaction from the market.

Economic reports

Conclusion

This morning's failed rally has things looking bearish and the choppy bounce off today's low could lead to another leg down in the morning, like we saw following Tuesday's bear flag, which led to a quick move down this morning. But keep in mind another new low could be followed by a quick reversal back up, especially since we're in the period when strong pullbacks in front of opex week have typically led to strong rallies as big buy programs ignite short covering. That is of course not guaranteed -- there are plenty of reasons to suspect we're on the verge of a market breakdown, but the larger pattern continues to support the idea that we are due one more rally leg, one which could take at least some of the indexes to new highs (doubtful for the RUT, TRAN and some others).

If the market breaks down from here it will be a little bit of a surprise. I can certainly see the potential for it to happen and it's a strong reason to be very defensive about being long the market. While I lean long here I remain fully aware of how vulnerable this market is and when it lets go to the downside we're likely going to see a strong decline as many leveraged investors are forced to cover their positions. The way I see it, this market is now more vulnerable to a downside disconnect than where we were in May 2008, just before it let go with a bang to the downside. Keep one foot holding the exit door open if you're long and be ready to bail first. If you're one of many looking to exit you might not like your exit price or how long it takes to get your trade executed. Getting out too soon and into cash, even right here right now, is a strong recommendation. And then play the long side with only a small portion of your capital. But keep that capital safe, maybe a little hedging on the short side and keep your ear to the tracks and listen for that southbound train coming.

And to help you hear that coming train, take advantage of the extra sets of eyeballs watching the market with you with a renewed subscription to OIN and the EOY special for you.

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

Keene H. Little, CMT

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


New Option Plays

A Tough Environment

by James Brown

Click here to email James Brown


NEW DIRECTIONAL PUT PLAYS

W.W. Grainger, Inc. - GWW - close: 193.12 change: -1.94

Stop Loss: 201.00
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 756 thousand
Entry on December -- at $---.--
Listed on December 09, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: Yes, see below

Company Description

Trade Description:
2015 has not been a very good year for GWW. The stock peaked back in 2013. Shares have suffered a long, slow trend of lower highs. Unfortunately for investors that bearish trend of lower highs has accelerated this year and sparked a trend of lower lows as well.

GWW is in the services sector. According to the company, "W.W. Grainger, Inc., with 2014 sales of $10 billion, is North America's leading broad line supplier of maintenance, repair and operating products, with operations also in Asia, Europe and Latin America." They now offer more than 1.2 million products and the company has grown to more than 700 branches.

GWW's management has lowered their guidance the last four quarters in a row. Their most recent earnings report was October 16th. Their Q3 earnings were $3.03 a share, which missed estimates. Revenues were down -1.1% from a year ago to $2.53 billion, also under expectations.

GWW held their annual investor day on November 12th. At that time the company said October sales were down -1% from a year ago and organic sales were down -2%. They also offered earnings guidance, which was a little bit below Wall Street expectations. They also warned that revenues next year will fall in a range from -1% to +7%. The company said this year has been really tough for the industrial economy and they don't see it improving much in 2016.

Technically the stock has struggled as investors keep selling the rallies. The sell-off this week has pushed GWW toward key support near its November lows. A breakdown here could see the down trend accelerate. The point & figure chart is bearish and forecasting at $165.00 target. Tonight we are suggesting a trigger to buy puts at $192.25.

Trigger @ $192.25

- Suggested Positions -

Buy the JAN $185 PUT (GWW160115P185) current ask $3.60
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

Stocks Sink Three Days In A Row

by James Brown

Click here to email James Brown

Editor's Note:

The S&P 500 index has fallen three days in a row and erased Friday's big rally. Today's decline has left the index breaking down below its 50-dma.

EXPE hit our entry trigger. SNA hit our stop loss.


Current Portfolio:


CALL Play Updates

Clovis Oncology - CLVS - close: 32.71 change: -0.26

Stop Loss: 29.65
Target(s): To Be Determined
Current Option Gain/Loss: -29.3%
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:
12/09/15: Biotech stocks experienced some profit taking today, following yesterday's bounce. Fortunately CLVS fared better than most of its peers. Shares only lost -0.7%. If this dip continues we can look for short-term support near $31.00.

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


Salesforce.com, Inc. - CRM - close: 79.71 change: -1.37

Stop Loss: $78.90
Target(s): To Be Determined
Current Option Gain/Loss: -28.3%
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:
12/09/15: The action in CRM today is troubling. Shares underperformed the broader market with a -1.6% decline. There was no news behind the relative weakness. Shares fell toward short-term support in the $79.00-79.25 zone. The stock should bounce here. If it doesn't we'll likely get stopped out at $78.90.

No new positions at this time.

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


Domino's Pizza, Inc. - DPZ - close: 109.10 change: -0.84

Stop Loss: 106.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 555 thousand
Entry on December -- at $---.--
Listed on December 07, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: Yes, see below

Comments:
12/09/15: DPZ spent today's session churning sideways. The stock failed beneath short-term resistance near $111.00 and then dropped toward technical support at its 200-dma (near $108.00).

We are still on the sidelines waiting for a breakout higher. Our suggested entry point to buy calls is $111.25.

Trade Description: December 7, 2015:
Delivering pizzas is old school business but one company has embraced technology. Domino's Pizza Group sales and marketing director Simon Wallis says: "The Domino's app has been downloaded over 10 million times and 75 per cent of our orders are now online." DPZ is outgrowing a lot of its competition.

DPZ is in the services sector. According to the company, "Founded in 1960, Domino's Pizza is the recognized world leader in pizza delivery, with a significant business in carryout pizza. It ranks among the world's top public restaurant brands with a global enterprise of more than 12,100 stores in over 80 international markets. Domino's had global retail sales of over $8.9 billion in 2014, comprised of more than $4.1 billion in the U.S. and nearly $4.8 billion internationally.

In the third quarter of 2015, Domino's had global retail sales of over $2.1 billion, comprised of over $1.0 billion in the U.S. and over $1.1 billion internationally. Its system is comprised of independent franchise owners who accounted for nearly 97% of Domino's stores as of the third quarter of 2015. Emphasis on technology innovation helped Domino's generate approximately 50% of U.S. sales from digital channels at the end of 2014, and reach an estimated run rate of $4.0 billion annually in global digital sales.

Domino's features an ordering app lineup that covers nearly 95% of the U.S. smartphone market and has recently introduced several innovative ordering platforms, including Ford SYNC®, Samsung Smart TV® and Pebble Watch, as well as Twitter and text message using a pizza emoji. In June 2014, Domino's debuted voice ordering for its iPhone® and Android® apps, a true technology first within traditional and e-commerce retail."

Their most recent earnings report was October 8th. DPS reported their Q3 results with earnings up +6.3% from a year ago to $0.67 a share. That actually missed Wall Street estimates by seven cents. Revenues were up +8.5% to $485 million. Their same-store sales in the United States rose +10.5%. Same-store sales internationally rose +7.7% and marked their 87th consecutive quarter of same-store sales growth. In comparison, DPZ's closest competitor, Pizza Hut, saw their revenues fall -0.8% last quarter to $262 million. Pizza Hut same-store sales were only up +1%.

A few weeks later late, on October 27th, DPZ announced an accelerated share repurchase (ASR) program. Management said they had approved an $800 million stock buyback program and would dedicate $600 million to an accelerated buyback. In their press release, J. Patrick Doyle, Domino's President and Chief Executive Officer, said: "Our business is flourishing. We're proud of the ongoing returns this is driving for both our shareholders and franchisees in the form of share appreciation, regular dividends, open market share repurchases – and store profitability. We were also able to use our balance sheet and strong relationships with lenders to provide an additional opportunity for shareholders through an accelerated share repurchase program." DPZ stock rallied on this announcement.

Technically shares have been stuck under a bearish trend of lower highs since the 2015 peak in July. That changed this week. DPZ has spent the last few days consolidating sideways beneath resistance near the $110 level. The stock displayed relative strength today with a breakout past $110 and its trend line of lower highs. Currently the point & figure chart is bearish but a rally above $112 would generate a new buy signal. Any follow through on today's bullish breakout could spark some short covering. The most recent data listed short interest at 16% of the 51 million-share float. Tonight we are listing a trigger to buy calls at $111.25.

Trigger @ $111.25

- Suggested Positions -

Buy the JAN $115 CALL (DPZ160115C115)

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


Expedia Inc. - EXPE - close: 125.02 change: -0.61

Stop Loss: 119.85
Target(s): To Be Determined
Current Option Gain/Loss: -18.4%
Average Daily Volume = 2.2 million
Entry on December 09 at $126.75
Listed on December 08, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: see below

Comments:
12/09/15: A late morning rally in EXPE briefly pushed the stock to new two-week highs and above its 50-dma. It was enough of a rally to hit our entry trigger at $126.75. EXPE quickly reversed and joined the broader market's widespread decline. Fortunately the pullback wasn't that bad and shares essentially erased yesterday's bounce.

Our trade is open but I would wait for a new relative high above $126.90 before initiating positions.

Trade Description: December 8, 2015:
Consumer spending has been something of a disappointment this year. Yet travel is one of the few exceptions that continues to see strong consumer spending. Expedia is a major player inside the $1.3 trillion-a-year travel industry.

EXPE is in the services sector. According to the company, "Expedia, Inc. is one of the world's leading travel companies, with an extensive brand portfolio that includes leading online travel brands, such as: Expedia.com®, a leading full service online travel agency with localized sites in 32 countries. Hotels.com®, the hotel specialist that offers Hotels.com® Rewards and Secret Prices through its mobile booking apps and localized websites in more than 65 countries. Hotwire®, a leading discount travel site that offers Hot Rate® Hotels, Hot Rate® Cars and Hot Rate® Airfares, as well as vacation packages. Travelocity®, a pioneer in online travel and a leading online travel agency in the US and Canada. Orbitz Worldwide, a global travel portfolio including Orbitz, ebookers, HotelClub and CheapTickets, brands and business-to-business offerings, including Orbitz Partner Network and Orbitz for Business. Egencia®, a leading corporate travel management company Venere.com, an online hotel reservation specialist in Europe. trivago®, a leading online hotel search with sites in 52 countries worldwide. Wotif Group, a leading portfolio of travel brands operating in the Australia/New Zealand region, including Wotif.com®, Wotif.co.nz, lastminute.com.au®, lastminute.co.nz and travel.com.au®. Expedia Local Expert®, a provider of online and in-market concierge services, activities, experiences and ground transportation in hundreds of destinations worldwide. Classic Vacations®, a top luxury travel specialist. Expedia® CruiseShipCenters®, a provider of exceptional value and expert advice for travelers booking cruises and vacations through its network of 200 retail travel agency franchises across North America. CarRentals.com®, the premier car rental booking company on the web The company delivers consumers value in leisure and business travel, drives incremental demand and direct bookings to travel suppliers, and provides advertisers the opportunity to reach a highly valuable audience of in-market consumers through Expedia® Media Solutions. Expedia also powers bookings for thousands of affiliates, including some of the world's leading airlines, top consumer brands and high traffic websites through Expedia Affiliate Network."

EXPE has been very active at making deals. Earlier this year they completed the acquisition of Orbitz Worldwide, which combined the No. 2 and No. 3 travel-booking companies into a $6.7 billion giant. That still trails behind Priceline's $9.2 billion annual revenues.

About a month ago EXPE announced at $3.9 billion deal to buy HomeAway (AWAY). The deal is expected to close in Q1 2016 and when completed it will make EXPE a serious threat to Airbnb in the alternative accommodation business, where people rent out rooms and homes.

EXPE's most recent earnings report was October 29th. The company announced their Q3 earnings were $2.07 a share, which was 5 cents above estimates. Revenues were up +13.2% to $1.94 billion, just a hair below expectations. Wall Street applauded the results and shares of EXPE surged to new highs (see chart). Following EXPE's Q3 results a few analysts have raised their price target on the stock (new targets include $150 and $180 a share).

A few days before Thanksgiving the U.S. State Department issued a global travel alert warning Americans about the threat of terrorism. The government did not provide any real details and just urged citizens to be more vigilant and cautious, especially around large crowds and public transportation. Airline stocks and EXPE all spiked lower on this headline but there hasn't been any follow through.

Technically shares of EXPE are in an up trend. EXPE is off about 10% from its 2015 highs (late October-early November) but it is up +47% year to date, making it one of the best performing stocks this year. The last few weeks have seen EXPE bouncing along technical support at its rising 100-dma. It looks like this consolidation is about to end and EXPE could be poised for another sprint higher.

The Monday high was $126.50. Tonight we are suggesting a trigger to buy calls at $126.75. We will start with a stop loss below the 100-dma. The $131.00 area has been resistance in the past but we are looking for a rally toward its November highs (near $140).

- Suggested Positions -

Long JAN $130 CALL (EXPE160115C130) entry $3.80

12/09/15 triggered @ $126.75
Option Format: symbol-year-month-day-call-strike


Illinois Tool Works Inc. - ITW - close: 92.39 change: +0.10

Stop Loss: 91.45
Target(s): To Be Determined
Current Option Gain/Loss: -57.1%
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:
12/09/15: ITW briefly traded to a new two-week low this morning. Shares bounced only see the bounce fade. ITW eked out a very small gain. If there is any follow through lower tomorrow we could get stopped out at $91.45.

No new positions at this time.

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


Netflix, Inc. - NFLX - close: 124.20 change: -2.78

Stop Loss: 119.85
Target(s): To Be Determined
Current Option Gain/Loss: -50.5%
Average Daily Volume = 20.5 million
Entry on December 07 at $132.55
Listed on December 05, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: see below

Comments:
12/09/15: The U.S. market produced another widespread decline and NFLX underperformed with a -2.18% drop. The stock did find support midday in the $122.30-122.50 region.

No new positions at this time.

Trade Description: December 5, 2015:
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 .

- Suggested Positions -

Long JAN $140 CALL (NFLX160115C140) entry $4.55

12/07/15 triggered @ $132.55
Option Format: symbol-year-month-day-call-strike




PUT Play Updates

American Express Company - AXP - close: 69.86 change: -0.05

Stop Loss: 72.35
Target(s): To Be Determined
Current Option Gain/Loss: -4.8%
Average Daily Volume = 5.8 million
Entry on December 08 at $69.75
Listed on December 03, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: see below

Comments:
12/09/15: AXP spiked higher at the open this morning. The rally ran out of steam before lunchtime at $70.80. Shares closed virtually unchanged on the session although considering today's market unchanged might be considered relative strength.

Technically AXP appears to have produced another lower high. Traders could buy puts now or you could wait for a new relative low under $69.30.

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.

- Suggested Positions -

Long JAN $70 PUT (AXP160115P70) entry $2.08

12/08/15 triggered @ $69.75
Option Format: symbol-year-month-day-call-strike


Bunge Limited - BG - close: 63.45 change: +0.03

Stop Loss: 67.05
Target(s): To Be Determined
Current Option Gain/Loss: +17.4%
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:
12/09/15: Just like AXP, shares of BG saw an early morning rally that failed and shares closed virtually unchanged on the session. Today's low was near $63.00. Readers may want to wait for a breakdown below $63.00 as our next entry point for bearish positions.

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


Stericycle, Inc. - SRCL - close: 116.55 change: +0.59

Stop Loss: 117.25
Target(s): To Be Determined
Current Option Gain/Loss: + 6.8%
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:
12/09/15: SRCL is not cooperating. Shares displayed relative strength again today with a +0.5% gain. More conservative traders may want to abandon ship now. The high on December 4th was $117.20. Tonight we will move our stop loss down to $117.25.

No new positions at this time.

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

12/09/15 new stop @ 117.25
12/07/15 new stop @ 118.25
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



CLOSED BULLISH PLAYS

Snap-on Inc. - SNA - close: 169.43 change: -1.29

Stop Loss: 169.40
Target(s): To Be Determined
Current Option Gain/Loss: -64.9%
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:
12/09/15: The stock market declined for its third day in a row this week. Shares of SNA broke down below short-term support at $170.00 and hit our stop at $169.40.

- Suggested Positions -

JAN $180 CALL (SNA160115C180) entry $1.85 exit $0.65 (-64.9%)

12/09/15 stopped out
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: