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Newsletter

Daily Newsletter, Saturday, 12/12/2015

Table of Contents

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

Market Wrap

Sleigh Wreck

by Jim Brown

Click here to email Jim Brown

Santa's sleigh lost traction in the growing oil slick and crashed into a falling yuan. Investors recoiled in disappointment and dumped stocks. The Santa rally may be delayed until a replacement sleigh can be found. Fortunately, Rudolph was not injured but he was traumatized by the crash in high yield bonds.

Market Statistics

Friday Statistics

The S&P gapped down -20 points at the open after China devalued the yuan again and posted a note on a website saying the currency would no longer be pegged to the dollar but to a basket of currencies. The yuan fell -.5% to a 4.5-year low at 6.45 to the dollar. This move surprised analysts since it came the week before the Fed is expected to hike rates, which would push the dollar even higher and the yuan lower.

Also pushing the markets lower at the open was news that Third Avenue Asset Management had halted redemptions on their high yield Third Avenue Focused Credit Fund. They halted redemptions because investors were fleeing at a faster rate than the fund could sell assets. Rather than sell at distressed prices the firm halted redemptions and said they would liquidate the fund in an orderly manner but it would take up to a year.

The $785 million fund had the most exposure to illiquid assets of any fund in its class. Some 85% Third Avenue's holdings are in distressed debt and that represents 12% of the fund class.

This is the first fund failure since the recession and the impact to the markets was extreme. Unfortunately, after the close Stone Lion Capital suspended redemptions on its oldest fund after being hit with "substantial redemption requests." Stone Lion capital manages $1.38 billion in distressed high yield debt with $400 million in the fund being closed.

One fund failure could be chalked up to bad management. However, the second failure on the same day is like yelling fire in a crowded theater. People will get trampled in a rush to the exits. Expect a flood of redemptions from other funds next week.

Do not look now but suddenly there is a crisis developing. There is blood in the water and the sharks are circling. Investors with cash in other high yield funds will be in panic mode on Monday and everybody will be making redemption requests to dozens of other high yield bond funds. This could be the start of a new crisis.

Before the financial crisis there was $700 billion in high yield corporate debt. Today there is nearly $1.8 trillion and a lot of that addition is high yield debt that will be under pressure next week. High Yield Statistics

In the chart below, I have contrasted the iShares High Yield ETF (HYG) in red with the S&P-500 in black. Since 2007 nine out of ten declines in HYG of 5% or more was followed by a 9% decline in the S&P. Since January, the HYG is down nearly -14%. The HYG is down -6% since the October highs.



Making matters worse is the implosion in the price of oil. Oil fell to a six-year low on Friday at $35.35 and well under the cost to produce for almost any well drilled since the recession. Energy companies are being crushed by the sharply falling cash flow and there is no end in sight until mid to late 2016. Companies are being forced to slash spending, halt drilling and layoff workers. The worst part is the high yield debt created by the energy sector. As much as 14% of the outstanding high yield debt is owned by energy companies.

Of the 35 high yield debt issuers that have defaulted so far in 2015 the energy/mining sector accounted for 57% of those defaults. Fitch Ratings expects the default rate to rise from the 5.3% at the end of October to 6-7% in the current environment. The peak was 9.7% in 1999. S&P Capital IQ quoted a recent report saying that credit quality for high yield borrowers recently hit a new low. Year to date high yield debt issuance is around $225 billion and a 13% decline from 2014 simply because the declining market has made issuance nearly impossible. New debt volume from the energy sector declined -39% compared to 2014. Nearly all the major banks have increased default reserves because of declining credit quality for energy companies and that is not even high yield. Those loans made by banks are considered decent loans.

With oil prices in free fall, those defaults are going to rise and the credit quality worsen even further. Energy companies are finally giving up on trying to conduct business as usual. Active rigs declined a whopping -28 last week to 709 with active oil rigs falling -21 to 524. We are well below the recession lows and the rate of decline is accelerating. Companies can no longer afford to drill because the oil they get in return will not pay for the wells.

The failure of OPEC to change the quota and the apparent easing of tensions between Russia and others surrounding Syria has removed support for oil prices. Even an unexpected decline in inventories of 3.6 million barrels failed to give oil a lift for more than a few minutes.



The meltdown in the high yield market and drop in equities saw investors running in a flight to quality. The yield on the ten-year treasury fell to a two-month low at 2.139% only three days before an expected Fed rate hike. That suggests the Fed has been trumped by the market and may not be able to hike rates into a potential credit crisis. You can bet there are some nervous Fed heads burning up the phone lines this weekend. Rising rates increase the cost of financing for corporations and makes them more susceptible to potential defaults.


Another problem in the high yield market is the ETFs. Multiple banks, brokerages and high profile analysts have been warning about this problem all year. The problem is lack of liquidity. High yield debt is illiquid by nature. A fund holding a portfolio of high yield investments cannot just put in a sell order and get anything close to market value. It has to be shopped and it can take weeks or even months to sell it at a fair value. However, ETF shares can be bought and sold daily as long as there are willing buyers. If everyone suddenly decides to exit their high yield ETFs and there are no buyers the price for ETF shares is going to implode even worse than the -2% drop we saw on Friday. It is entirely conceivable that we could see these ETFs decline to retest the financial recession lows.

Carl Icahn warned about this in his video back in September. On Friday he reiterated his claim that the "high-yield market is just a keg of dynamite that sooner or later will blow up."


There is no free lunch. While the zero interest rate environment created by the Fed over the last seven years may have seemed like a free lunch by everyone borrowing money for capital expenses, share buybacks and dividend payments, there is going to come a day of reckoning. The Fed put $4.5 trillion of QE into the market and to this day, they are still keeping it at that level by rolling over maturing securities into new purchases. Eventually the Fed is going to normalize rates from their current abnormally low level. The Fed has NEVER successfully embarked on a rate hike cycle without eventually crashing the equity market. There is no reason to believe that they will be able to unwind the biggest stimulus in history without causing a material market disruption. Peter Boockvar said, "Anybody that thinks the Fed can somehow extract themselves from this policy in any smooth way is delusional. When you go so far one way deep into excessive monetary policy, there's always going to be some hangover."

The potential hike expected next week is not important in itself. A quarter point is not material. The important point is that rate hikes are beginning and like a freight train they will start slow but the pace will quicken at some point in the future. Also like the train the impact will take a long time to be felt but once in full motion it will take a long time to stop if the Fed suddenly decides it acted too early and too aggressive. For this reason if the Fed does hike rates in this seriously unstable environment they will probably offer some language with the rate hike that suggests the next hike is a long way off.

Many analysts and market watchers believe the unstable markets, both credit and equity, will keep the Fed from hiking next week. The decline in the emerging market currencies is another problem for the Fed. The Brazilian real fell -2% on Friday. The South African rand fell -10% for the week. All the Asian currencies fell with the yuan on Friday.

The forecasters are about evenly divided with those expecting a hike claiming the Fed will lose all credibility if they do not hike. After the market decline over the last two weeks the Fed could lose credibility if they do hike into a market meltdown. I am just glad I will not be the one making that decision.

According to the CME's Fed Watch tool, there is an 81% chance of a hike to 50 basis points based on Fed Funds Futures.


The Fed actually caused some of the high-yield problems we have today. With rates at zero, investors were forced to take on higher risk to obtain any kind of yield on their money. Money market funds were paying nothing and CDs and similar instruments were paying next to nothing. Investors saw the 7-8% yields in the high yield markets and the lack of any material defaults in the prior years and thought, ok, I can put some money there. Those in the ETFs thought, I can exit at any time so my risk is limited. Unfortunately, there is always risk when you reach for yield.

If the Fed had "normalized" rates over the last several years, a lot of those investors would be content with the 2-3% yield they would have been getting on normal money market funds and brokerage accounts. The Fed is aware of this and while they will not actually take the blame they are desperate to hike rates so normal investors can eventually get a safe return on their money and the Fed will have some room to maneuver when the next recession appears 12-18 months from now.

On the economic front, there was some good news on Friday. The Producer Price Index for November rose +0.3% after three monthly declines totaling -1.0%. However, all the gains came from the services component at +0.5% with the goods component declining -0.1%.

Final demand declined -1.2% over the same period in 2014 with prices for goods down -4.3% over the same period. Intermediate processed goods are down -7.2% and unprocessed goods -26.6%. Core unprocessed is down -30.3% year over year. Those big numbers are the result of oil price declines.

It was hardly a surge of inflation at the producer level and the report was ignored.

Retail Sales for November rose +0.2% compared to estimates for +0.3%. Falling gasoline prices weighed on the gains and kept them from being larger. Sales excluding autos and gasoline rose +0.5%. Gasoline stations declined -0.8%, building materials -0.3%, furniture -0.3% and motor vehicles and parts -0.4%. Those were offset by a +0.7% gain in food and beverages, clothing +0.8%, sporting goods +0.8%, general merchandise +0.7%, food service +0.7% and nonstore retailers +0.6%. Excluding autos and gasoline, retail sales are up +3.6% over the same period in 2014.

Business Inventories for October were almost flat (-0.03%) after a +0.3% gain in the prior month. Analysts were expecting a +0.1% increase. The inventory to sales ratio rose again to 1.38 and sales declined -0.2%. The report was ignored.

The economics reports for the week lifted the GDPNow forecast from the Atlanta fed to +1.9% growth, up from +1.5% at the start of the week.


Consumer Sentiment for December rose slightly from 91.3 to 91.8 compared to estimates for 92.0. Some analysts were expecting more with the Moody's consensus at 94.7. The present conditions component rose from 104.3 to 107.0 and the expectations component declined from 82.9 to 82.0.

Lower gasoline prices probably offset any worries over the California terror attack.


We have a full calendar for next week but the only events that really matters are the FOMC announcement and the Yellen press conference. The others are important for the overall economic picture for Q4 as the quarter winds down but the rate hike is the key event.


Ensign Group (RNSG) announced a 2:1 split last week at the whopping high price of $49. It is rare that a company with a stock that low will split but Shenandoah Telecom did the same thing a couple weeks earlier.

BT Group completed their split on the 8th and Edwards Lifesciences split after the close on Friday. Nike is next on the list on the 23rd along with Ensign.

For the full split calendar click here.


In stock news, Towers Watson (TW) said shareholders approved the merger with insurance broker Willis Group Holdings. The merger will include a one-time cash dividend of $10 to be paid to Towers shareholders. Willis shareholders will own 50.1% of the combined company.


Adobe Systems (ADBE) reported earnings of 62 cents compared to estimates for 60 cents. This was nearly double the 36 cents in the year ago quarter. Revenue rose by +22% to $1.31 billion. Adobe said they were targeting a 20% annual growth rate through 2018 as a result of their cloud focus.

The company said it expects full year earnings to be $2.70 and revenue $5.7 billion. Analysts were expecting $3.19 and $5.93 billion. Adobe said the strong dollar was a major headwind as was the shift from one-time purchases to cloud subscriptions. Surprisingly the stock rallied 3% on the news. KeyBanc raised their price target from $90 to $110. Stephens upped their target from $100 to $115. RBC hiked from $103 to $112 and UBS from $90 to $105.


Whole Foods Market (WFM) rallied 8.6% after ITG Market Research said proprietary data indicated revenues for the current quarter were tracking towards $4.865 billion and above consensus for $4.817 billion. Same store sales were seen as -1.2% compared to estimates for -2.2%. ITG said basket growth was flat to down. I would not have expected such a big rebound from the ITG news but the stock was heavily shorted.


KMG Chemicals (KMG) reported record earnings of 42 cents and revenue of $76.7 million. That was up from 24 cents in the year ago quarter. This was the seventh consecutive quarter of double-digit earnings growth. Shares spiked +27% on the news.


Optical networking company Finisar Corp (FNSR) reported earnings of 25 cents compared to estimates for 23 cents. Revenue of $321.1 million beat estimates for $314.2 million. The company guided to earnings of 19-25 cents in the current quarter on revenue of $300-$320 million. Analysts were expecting $318 million. Shares rallied 22% on the news.


GoPro (GPRO) actually closed slightly higher on Friday despite being downgraded by Citigroup to neutral. The bank cut the price target from $75 to $22. The analyst cut earnings estimates for Q4 from 41 cents to 22 cents. Consensus is 40 cents. CLSA cut them to a sell with a price target of $26. Since GPRO is trading at $19 that did not make sense to me. Multiple analysts said the CEO's appearance on QVC selling discounted cameras was a negative indicator. "Why would he need to discount on QVC if normal retail sales were strong?"

A new camera from competitor Xiaomi YI Technology is selling for $99.95 and two reviews actually claimed it was better than GoPro in some features. Amazon Link It even has the Ambarella chips. That makes the GoPro Session 4 at $300 a tough sell. Another analyst said he did not understand the model. Once you buy one you do not need to buy another one. All that work to get a customer and then it is a one-time sale. I do not really buy that idea since I think it is addictive to some users and I am sure the "action" cameras are smashed repeatedly and require replacement. However, like any speculative product I am sure a lot of them end up on a shelf somewhere collecting dust.

Shares were up slightly on multiple analyst suggestions that Apple buy the company in 2016. Clearly, this is just wishful thinking at this point but it did cause some people to either take a new position or close their shorts. I would personally be looking for a new short entry given the signs of desperation from the CEO.


Markets

The markets are quickly moving into severely oversold territory. The 80-point drop on the S&P and nearly 600-point decline on the Dow came on heavy volume and the week closed on the lows. That is not a good sign. Art Cashin said whenever the S&P loses more than 1.5% on a Friday and closes on the lows, the following Monday is normally negative.

Friday's volume was 8.3 billion shares and 7.2 billion of that was declining volume for a 7:1 ratio. Earlier in the day is was 10:1 but there was some dip buying near the close. That was probably shorts covering ahead of the weekend. Decliners across all markets were 6,202 to 1,025 advancers. New 52-week lows spiked to 739 from 332 on Thursday. That is the highest number since the 1,029 new lows on September 29th.

The percentage of S&P stocks over their 200-day average declined nearly 8 points to 38.2% and near the lows for the quarter. Note that the percentage has been declining since July 2014.


The advance/decline line has been declining since the beginning of December and is at two-month lows.


The McClellan Oscillator is an overbought/oversold index and it is currently at the second lowest level of the year. This suggests we should be at or near a bottom for this decline. The market drop in August was much more severe and the index was only slightly lower than it is today.


The Dow Transports are leading the Dow Industrials lower. The warnings on rail car loadings and lower revenue per airline passenger mile are weighing on the transports. The contraction in the manufacturing because of the strong dollar and weak economy is pressuring the entire transport sector.

In the trucking sector average per-mile rates on the spot market declined for all three major truckload segments in November, according to data from Truckstop.com. This is the fourth consecutive month of declines. According to the Cass Freight Shipments Index, it was the worst October for shipments since 2011 and it followed the worst September since 2010. Shipments declined -4.7% month to month and -5.3% year over year. Full Article



The AAII Investor Sentiment Survey closes on Wednesday and while the market was in decline the big hit did not come until Friday. The survey saw bullish sentiment decline only 1% while neutral sentiment fell -7.7% and bearish rose +8.7%. If the market continues negative next week the numbers should be a lot more lopsided.


There is another trend that is worth mentioning. The market typically rallies on Tue/Wed into a Fed meeting. There was a study done n 2013 on what is called the "Pre-FOMC Announcement Drift." Since 1994 the S&P averages a +0.49% gain in the 24 hours before the FOMC announcement. With eight FOMC meetings a year, that is roughly a 4% gain per year on the S&P in only eight days a year.

So far in December we have had mixed results with seasonal trends. The first week was supposed to be positive and was not. The second week is supposed to be negative and it was definitely negative. Starting this week the seasonal trend is for a rally into year-end. I am reprinting the chart from the Stock Trader's Almanac that I used two weeks ago. While the early month bounce did not appear maybe we will get lucky and have a stronger than normal end of month rebound.


The S&P broke through critical support at 2,020 to close at 2,012. If Art's Friday trend is right, we should open lower on Monday and that suggests we could retest support in the 1985-1990 range as well as psychological support at 2,000.

At this point, the support at 1985-1990 is critical. A failure there could easily produce further cascade selling and take us back to the Aug/Sep lows. The drop below 2,020 gave us a lower low to go with the lower high on December 1st. In theory, this is negative but we need to take into account the calendar and the tax selling that occurs in early December. However, if the 1,985 level breaks we will be in full breakdown mode and seasonal trends will no longer be an excuse.


The Dow was ugly on Friday with more than half the components losing more than $1 and a third losing $2 or more. Goldman Sachs, the heaviest weighted Dow component lost another $5.50 and stretched its recent decline to nearly $25. This is completely contrary to expectations for a rate hike, which normally lifts banks. The Morgan Stanley layoffs and declines in trading revenue are weighing on the entire banking sector. The high-yield implosion is also impacting them because investors do not know how much exposure they have to that sector. This suggests Goldman will continue to decline.

The Dow declined to 17,230 and just above support at 17,210. There are a couple levels of support between Friday's close at 17,265 and 17,000. However, a close under 17,000 would be very destructive psychologically. Resistance is well above at 17,700.



The winners and sinners graphic below is a good example of why the Nasdaq lost -112 points on Friday. This is the top and bottom 25 out of all 3,100 of the Nasdaq stocks. Only 16 stocks gained $1 or more and the 25th largest gainer only added 65 cents. It was a massacre and there were very few survivors.


The Nasdaq Composite lost 4% for the week and 2.2% on Friday alone. The index was knocked back to just above strong support at 4,900 after touching 5,176 on December 2nd. That is nearly a 275-point decline in only 8 trading days. Last week I suggested readers might want to speculate in some QQQ calls if they could not wait for a market bottom to appear. At that time, the Nasdaq was nearing a breakout to a new high. Conditions sure changed in only a week.

We need to hope that the 4900 level holds or it could be a long drop.


The Nasdaq 100 ($NDX) did make a new intraday high on Dec 2nd at 4,739 but it was brief and sellers appeared immediately. The retest three days later topped out at 4,722 and sellers appeared immediately. Since that second attempt, the Nasdaq has only had two down days but they were both significant losers.

The FANG stocks (FB, AMZN, NFLX, GOOGL) were crushed over the last three days. This could be a prime example of tax loss selling. Investors are selling the winners to offset their losers. Eventually this will end but there were no signs of dip buying in those issues on Friday.

I would still be a speculative buyer of January QQQ calls on any rebound in the NDX and I would probably buy a dip to 4,500 even before there are signs of a rebound. The 4485-4500 support is decent and could be a bounce point.


The Russell 2000 small caps have collapsed with a -5% drop for the week. Support at 1,135 failed miserably and the index closed at 1,123 on Friday. Historically the small caps are the biggest gainers over the next two weeks. I am not holding my breath this year. The solid dive over the last seven days is very depressing and does not instill confidence.


The NYSE Composite Index ($NYA) is in free fall. This is more than likely the result of oil stocks, commodities and financial ETFs crashing. However, none of those sectors are likely to rebound next week other than possible short covering so the NYSE appears destined to retest the September lows at 9,500. That does not bode well for the other indexes.


For months, we have been preaching caution about the narrow breadth of the rally with the big cap techs leading the other indexes higher. Only 8 big cap tech stocks were responsible for 65% of the market's gains. When those stocks rolled over and were no longer supporting the market the weaker brethren collapsed. Add in the seven-year low in oil prices and commodities and the weakness spread like a virus throughout the indexes.

I have reported multiple times about the seasonal rally in the second half of December. However, I cannot remember when the Fed hiked rates in December. Typically, the December meeting is a holiday party rather than a real business meeting. The conventional wisdom is for the Fed to not rock the boat around the holidays when portfolio managers are trying to close out their positions for the year and get set up for the next year. Managers are not prepared to deal with a change in Fed policy with only one real week of trading left in the year.

This time around, Yellen and her band of brothers are determined to hike rates in 2015 and they have indicated they are likely to do it next week. That has no doubt prompted some managers to reduce their risk exposure and rebalance their allocations ahead of the event. Whether the Fed actually hikes in the face of crashing markets and a potential credit crisis is unknown. Most traders would look at the various storm clouds and bet on a pass until March or at least January.

The uncertainty caused by the Fed has crippled the equity markets all year and that is why all the major indexes, with the exception of the Nasdaq, are negative for the year. The market has celebrated recently when the Fed has made statements indicating they would probably hike rates in December. This is investors celebrating the end of uncertainty. If the Fed does not hike, the uncertainty cloud may descend upon the market again and we will get to do this dance all over again in January.

Keep your fingers crossed that the "Pre-FOMC Announcement Drift" trend returns and lifts us out of any Monday decline. Hopefully the Fed will make a market pleasing decision and the late December trend kicks in on schedule.

The quadruple witching options expiration week in December is the most bullish of the four quarterly expirations. This is another one of those seasonal trends that could work in our favor.

An Added EOY Bonus This Year!

As an added bonus this year I am including a copy of Jason Zweig's "The Devil's Financial Dictionary." I recently bought this book and loved it. I immediately decided to reward every EOY subscriber with their own copy. This is 256 pages of irreverent definitions to all the terms you hear in the market every day.

"Open this wonderful book to any page. Try not to laugh. I dare you." - James Grant, Grant's Interest Rate Observer

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Annual End of Year Subscription Special

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Random Thoughts


Because of President Obama's constant call for more gun control, consumers are buying more guns than ever. The FBI said it conducted nearly 2 million background checks in November. That was a 23% increase from November 2014. On Black Friday alone a record 185,000 background checks were completed. Smith & Wesson (SWHC) reported strong earnings and raised guidance because of the surge in gun buying. Sturm Ruger (RGR) has rallied +22% since November 1st. The recent terrorist attacks in California have caused lines to form outside gun stores with people waiting for their turn to purchase a gun.

For the first time in 20 years, more Americans oppose a ban on assault weapons than favor a ban. Full Article


A new firearms channel called Gun TV will begin broadcasting on January 20th. Gun TV


When Keurig Green Mountain was bought out for $13.9 billion, it pushed the value of all the deals for the year to a record $4.614 trillion. That was 18,603 deals on a global basis. The prior peak was in 2006-2007 at 23,577 deals for $4.610 trillion. The next highest peak was 1999-2000. Do those dates ring a bell? What do 2000, 2007 and now 2015 have in common? Those were peaks in the market prior to recessions. While we do not know about 2015 yet I reported last week that Citigroup and JP Morgan are forecasting a 65% or greater chance of a recession in the coming months.

Andrew Ross Sorkin wrote in the New York Times that a flurry of M&A lined up with a pattern of pre recession spikes. The theory was that revenue growth was slowing, cost cutting had run its course and the only avenue left for corporations to continue to grow was to merge with someone to gain access to their customers and product lines and reduce costs even further through synergies. Sorkin quoted a Citigroup study with the same conclusions. This further suggests a recession is headed our way over the next 12-18 months. Full Article


Time for VIX puts? If the seasonal trend for the end of December finally appears, it may be time to buy some VIX puts. The VIX is rarely above 20 and only for brief periods. You can buy the January $20 put for about $2.25 today and should a rally appear and the VIX return to the $15 level we saw last week that would be a winning trade. There is no guarantee a rally will appear but after the decline we had last week there is definitely a short squeeze in our future.



It is not just the U.S. markets taking a dive. All eight of the world's major indexes are in decline. Is that a just a coincidence or a sign the global economy is fading even further. This suggests it was not just tax loss selling in the U.S. since other markets suffered the same fate. The average decline for the week was -3.18%. Full Article at DSShort.com



Bomb threats forced the closure of malls and shopping areas in four states on Saturday. The Largo Mall near Tampa Florida, the Shops at Riverside in Hackensack NJ, the the Animas Mall in Farmington NM and the Embarcadero in San Francisco were closed for bomb threats and/or suspicious packages. These stories are a good reason to shop online. Full Business Insider Article


A survey of multiple strategists by Barron's suggests the equity markets will rise about 10% in 2016. The strategists gave their reasons and a few stocks they believe will do well. David Kostin, Goldman's chief strategist believes the Fed will hike 4 times in 2016 to raise rates to 1.25% to 1.5%. Kostin's picks were Visa (V) and Alphabet (GOOGL). Savita Subramanian, head of U.S. equity and quantitative strategy at Bank of America Corp. liked Disney (DIS) and 3M (MMM). Stephen Auth, CIO at Federated said Avago Technologies (AVGO) and Gilead Sciences (GILD) would be winners. Full Article


Tis the season to be an Amazon temp worker. In 2012 Amazon hired 50,000 temps for the holiday shopping season. In 2013 that rose to 70,000, 2014 80,000 and this year they hired 100,000. The average hourly pay is $12.35 an hour for a job at an Amazon warehouse picking products from the shelf and stuffing shipping boxes. Amazon uses temporary staffing firms to locate, hire and manage the workers. Amazon pays them an average of $70.4 million a week during the holiday season from Thanksgiving through Christmas. Amazon has 90,000 permanent workers at its 70 warehouses and shipping hubs.

Temp workers have hand held scanners that tell them what item to pull from the shelf and at what location. Once they scan it, the computer gives them a new item and the number of seconds it is expected to take them to complete the task. Temp workers that perform well can be offered a permanent job and move up the ranks into management.


There is a 12% chance of a Solar Superstorm hitting earth over the next decade. A storm similar to the one that narrowly missed earth in 2012 would cause $2 trillion in damage and lead to the deaths of tens of millions of people. It is not just this decade. There is a 12% chance in every decade. Eventually our luck will run out. Are you prepared to live with no electricity for several years?Full Article


 

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

 

"2015 was like commuting by roller coaster. This has been one of the more difficult markets I have seen in 50 years... I have spent time and time again trying to figure out what action causes what reaction and how do things fit in. And, in the past several weeks, it really has not fit."

Art Cashin


 


Index Wrap

Deeper Correction Looms

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

I use the word 'correction' here versus seeing recent weakness as the start of a major downside trend reversal. Potential downside objectives in a second down leg that could complete a bearish correction are based on a Fibonacci 'formula' or rule of thumb which I'll get into next.

The decisive downside penetration of the prior lows in the S&P (not yet the Dow) changes the pattern there to bearish in the short to intermediate term. This pattern of sharply piercing the prior low hasn't been repeated yet in the tech-heavy Nasdaq. After a prior major rally, THE most common bearish counter-trend pattern is called in 'wave' terms an 'a-b-c' or down-up-down correction, where the second downswing from peak to low is more than the first, often significantly more. There's a way to 'measure' the possible downside of a second corrective downswing.

An example initially in the S&P 500 (SPX): Given the decisive downside penetration of SPX's prior low, a second down leg END point often has a Fibonacci relationship of 1.38, 1.5 or 1.62 times the first decline of 97 points. From the recent SPX peak at 2104 a second longer down leg equaling 1.38 times the first is 134, suggesting potential to 1970; i.e., 2104 - 134 = 1970.

If the second longer downswing implied by a down-up-down ('A-B-C') correction carried a distance equal to a Fibonacci 1.5 X the first decline of 97 points, a potential objective becomes 1959; i.e., 2104 - 145 = 1959.

A still-deeper correction where a second bigger decline was 1.62 times the distance carried in the first sell off, sets up a possible target to the 1948 area; i.e., 2104 - 156 = 1948.

Wave theory and Fibonacci relationship of a second down leg to the first, suggests possible downside targets in SPX in a range, from 1970 to 1959, extending to the 1948 area.

You will see on my charts analysis on suggested support and resistance areas based on prior support/resistance; OR, potential support highlighted may be the common Fibonacci retracements of 38, 50 and 62 percent of the prior advance.

Potential target/OBJECTIVES based on a second down leg that's 1.38 to 1.5 to 1.62 as long as the first downswing are a related analysis but are not highlighted as 'support'. Such downside targets for a second longer down leg also rely on Fibonacci calculations.

SENTIMENT factors, as well a long-term chart analysis, play into my current Market view of correction-only versus Bear Market ahead. I've not seen the start of a Bear Market when traders had very LOW bullish expectations. I've yet to see over many market cycles a major TOP that wasn't formed with very high and persistent bullishness, which is quite the contrary currently.

[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) has turned bearish in its short to intermediate pattern given the decisive plunge below its prior low. Such a pattern often suggests that a further decline, a second down 'leg' will carry farther than the first downswing.

I outline how possible further downside targets could be calculated in SPX in my initial bottom line commentary above. My maximum downside projection, assuming this decline gathers steam is to the 1950 area.

Per my chart, anticipated near support/buying interest comes in around 2000-1995. 1995 is support implied by this level being a half/50% retracement of the prior advance. Next lower support is highlighted at 1965 and a 62% retracement. 1950-1960 looks like fairly major support is there.

Initial and key overhead resistance is seen at 2050, the recent 'breakdown' point where selling got fierce and buyers scarce. Fairly strong resistance looks to next come in around 2100.

Bullishness is way down per my 'CPRATIO' indicator and the Relative Strength Index is headed that way too. Best advice is to look for further weakness but don't get way bearish either.

The S&P 100 (OEX) INDEX DAILY CHART

The S&P 100 (OEX) chart turned short to intermediate-term bearish with the sharp break below its prior 902-901 lows and to a weekly Close below the 'milestone' 900 level.

The rounding pattern that was traced out by the declining lows into this past week finally reached a tipping point or 'breakdown point' around 920. Resistance is seen at 915, extending to 925.

OEX might stage a minor rally around 900 but there's also potential for a dip to next potential support at, 886 to probably 880.

886 would represent potential support at 50% retracement of OEX's October rally and is often a give-back amount that is seen in a 'normal' correction, where selling doesn't continue on into a waterfall type decline. Next lower technical support comes in around 870-872, with 872 representing a Fibonacci 62% retracement.

Anything near the 870 area is a good bet for bottoming action into a year-end rally; aka a Santa Claus rally! Stay tuned.

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

The Dow 30 (INDU) didn't break as sharply as the S&P in that INDU held above ITS prior low and above key near support at 17200. Of course, the narrow PRICE-weighted Dow doesn't bend under the weight of big oil companies with monster capitalization that's reflected in the capitalization-weighted S&P indices.

The Dow of course lagged the S&P on a potential move to new highs so its more 'modest' recent correction isn't suggesting stocks will stabilize and end stock jitters; aka 'Fed jitters'!

I play the odds of corrections. There's often a 50 percent chance that a stock or index, within a long-term bull trend, will often retraces about half of its prior gains and then rallies. Support implied by a 50% retracement-pullback suggests next key support below 17200 is noted below at 16960. We can generalize key next lower Dow support as coming in around 17000.

Near technical resistance is seen at 17600, at the pivotal 200-day moving average; piercing this level led to a sharp further dip of nearly 400 points. Resistance in the 17600 area extends to 17700.

NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:

The Nasdaq Composite (COMP) has turned mixed to bearish as initially suggested by the classic 'sell signal' double top made by COMP. I was thinking small slide/pullback, then on to new highs above 5200. WRONG! Instead came a sharp downside penetration of key support at 5000. COMP hasn't pierced ITS prior low (just above 4900), so its chart doesn't have the more bearish aspect implied by SPX's decisive downside penetration of its prior low.

Pivotal overhead COMP resistance is 5000. Areas where prices fell off a cliff (a 'breakdown' point) see a lot of selling coming in on a return rally. Next resistance is highlighted at 5100. A sustained recovery move back above 5000 is needed to suggest renewed upside momentum in the Composite.

Key near support is at 4900. Next lower support, implied by a 50% retracement of the October rally, comes in at 4835. A decline to 4835-4800 area, if seen, could be potential low for the current pullback. Stay tuned!

Trader bullishness keeps dipping. So much so that I'm thinking there will be a solid trade coming up betting against this crowd.

THE NASDAQ 100 (NDX); DAILY CHART:

The Nasdaq 100 (NDX) traced out a bearish double top at 4737 as seen on the daily chart; this top was still shy of NDX's all-time 4816 peak. When Index support was then pierced at 4600 with selling piling on, this second top now appears as a more potent bearish chart pattern.

The key when a top is hit twice is what happens on the pullback, whether shallow or deep, because, as the old saying goes, "tops are 'made' to be broken". Well, sometimes!

Pivotal support is at 4500. If 4500 isn't pierced, this recent weakness doesn't suggest major bear damage. Below 4500, 4400 is next lower support, extending to 4300. A deep correction could carry to the 4300 area. In that area, if seen, risk to reward potential in bullish plays, favorable.

Near resistance is seen at 4600. Ability for NDX to climb back above 4600 in a sustained move would regain bullish momentum.

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

The Nasdaq 100 tracking stock's (QQQ) upside momentum stalled as seen in the 115 double top. A two-headed monster for the QQQ bulls perhaps if said top turns out to preface a major correction. 112 is important near resistance, with next resistance then beginning at 114.

Key QQQ chart support is in the 110 area, at the prior lows. I'm not thinking major correction here but all eyes are on 110. If this area holds as support, the chart looks just 'mixed'. Not so if 110 support is pierced as a subsequent decline could carry to 108, with a slide perhaps extending to 106 and my current lowest downside target.

On Balance Volume is drifting sideways to lower. No big daily volume spikes have come yet. A major volume jump looks likely if 110 is pierced. Whether this would 'signal' any immediate bottom is unlikely. But a cluster of high volume days are often followed by an end to a decline.

The RUSSELL 2000 (RUT); DAILY CHART:

The Russell 2000 Index (RUT) has been reliably waxing and waning between its narrow upside trading 'band' at 2.5% above the 21-day moving average and on the down to 5 percent under the 21-day. Obviously, more downside bearish influences going on with the rallies smaller, the declines bigger. This is a mixed picture or chart best defined as a trading-range market. Buy it at support, sell at resistance.

Near resistance is at 1140, with next resistance in the 1170 area. 1200 has been a slam-dunk area to short.

Best near support is seen in the 1100 area, with support assumed to extend to the prior cluster of lows at 1080.

A frequently reliable sign of the end of decline has been seen with the 13-day Relative Strength Index (RSI) into or below the oversold extreme highlighted in the 30-25 zone and below. Stay tuned, with RSI at 33.


GOOD TRADING SUCCESS!




New Option Plays

Stocks Look Due For A Bounce

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

AmerisourceBergen Corp. - ABC - close: 102.08 change: +0.13

Stop Loss: 99.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.2 million
Entry on December -- at $---.--
Listed on December 12, 2015
Time Frame: Exit PRIOR to earnings in late January
New Positions: Yes, see below

Company Description

Trade Description:
Stocks had a rough week but ABC has been showing relative strength. Shares of ABC are now up three out of the last four weeks and up six sessions in a row. Considering how ugly the stock market was last week, ABC looks pretty attractive.

ABC is in the services sector. According to the company, "AmerisourceBergen is one of the largest global pharmaceutical sourcing and distribution services companies, helping both healthcare providers and pharmaceutical and biotech manufacturers improve patient access to products and enhance patient care. With services ranging from drug distribution and niche premium logistics to reimbursement and pharmaceutical consulting services, AmerisourceBergen delivers innovative programs and solutions across the pharmaceutical supply channel in human and animal health. With over $135 billion in annual revenue, AmerisourceBergen is headquartered in Valley Forge, PA, and employs approximately 18,000 people. AmerisourceBergen is ranked #16 on the Fortune 500 list."

The company reported their 2015 Q3 results on July 23rd. They beat Wall Street estimates on both the top and bottom line. Revenues were up +12.8%. Management forecasted full-year 2015 income growth in the 20-to-22% range.

Fast-forward to late October and ABC reported another strong quarter. The company announced their 2015 Q4 results on Oct. 29th. Wall Street was expecting a profit of $1.18 a share on revenues of $34.5 billion. ABC beat estimates again with a profit of $1.21 a share. Revenues were up +12.3% to $35.47 billion. Management raised their 2016 earnings and revenue guidance above analysts' estimates. They're now forecasting 2016 revenue growth of +8% to +10%.

Last month ABC raised their dividend by 17% to $0.34 a share. Normally raising the dividend is a sign of confidence by management. Meanwhile Citigroup analyst Robert Buckland recently listed ABC as one of his top 28 value stocks in the U.S. market (for 2016).

Technically shares bottomed in October after a three-month plunge from resistance in the $115 area. Now ABC has a bullish trend of higher lows. The last few days have seen ABC produce a technical breakout past round-number resistance at $100 and technical resistance at its 100-dma. The point & figure chart is bullish and forecasting at $122 target. Tonight we are suggesting at trigger to launch bullish positions at $102.85.

Trigger @ $102.85

- Suggested Positions -

Buy the FEB $105 CALL (ABC160219C105) current ask $3.00
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:


SPDR S&P 500 ETF - SPY - close: 201.88 change: -3.99

Stop Loss: 201.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 137 million
Entry on December -- at $---.--
Listed on December 12, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: Yes, see below

Company Description

Trade Description:
There is a good chance stocks could bounce this week.

Mid-December tends to see a pullback due to tax-loss selling ahead of yearend. This past week was probably the height of tax-loss selling. The only problem was the normal weakness was exacerbated by the sell-off in crude oil, which crushed the energy sector. The rest of the market followed it lower. Wild fluctuations among the major currencies didn't help. Plus, we have the FOMC meeting this week and there seems to be a lot of confusion and uneasiness about the Fed likely raising rates for the first time in almost a decade.

Now crude oil is extremely oversold and due for a bounce. Stocks look short-term oversold as well. The S&P 500 just suffered its worst week since the August 2015 market correction lower. The S&P 500 should have support in the 2,000 area and a bounce could spark a yearend rally. The next three weeks is normally very bullish for stocks, according to historical trends.

We want to be ready if stocks do bounce. Tonight we are suggesting a bullish trade on the S&P 500 index. The easiest way to play that is the SPY. Wait for a bounce. We will use a trigger at $203.25 as our entry point. We'll try and limit our risk with a tight stop loss at $201.25. More aggressive traders might want to consider a stop loss below the $200 mark.

Trigger @ $203.25

- Suggested Positions -

Buy the JAN $205 CALL (SPY160115C205) current ask $2.71
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:



In Play Updates and Reviews

Sell-off Accelerates On Friday

by James Brown

Click here to email James Brown

Editor's Note:

Yet another plunge in crude oil on Friday, to new multi-year lows, helped fuel another widespread sell-off in stocks. It was the worst week for the S&P 500 index since the August correction.

CRM, ITW, and NFLX were stopped out. Our bearish trade on FFIV was opened.

There are new stops on AXP, BG, and GWW.


Current Portfolio:


CALL Play Updates

Clovis Oncology - CLVS - close: 31.95 change: -0.81

Stop Loss: 29.65
Target(s): To Be Determined
Current Option Gain/Loss: -27.6%
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:
12/12/15: Biotech stocks were hit hard on Friday. The IBB biotech ETF fell -2.89%. Shares of CLVS followed it lower with a -2.4% decline. The stock did manage to bounce off its Friday morning lows near $31.20. The $31.00 level looks like short-term support. More conservative traders may want to raise their stop loss.

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:


Domino's Pizza, Inc. - DPZ - close: 108.64 change: -0.39

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:
12/12/15: DPZ held up relatively well on Friday. Shares dipped to their 200-dma and started to bounce. DPZ ended the session with a -0.35% decline versus the S&P 500's -1.9% plunge. Currently we are still on the sidelines waiting for a new relative high.

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

chart:


Expedia Inc. - EXPE - close: 123.21 change: -2.40

Stop Loss: 119.85
Target(s): To Be Determined
Current Option Gain/Loss: -27.6%
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:
12/12/15: EXPE retreated toward support during the market's slide on Friday. Shares fell -1.9%, which was a little better than the NASDAQ's -2.2% decline. Watch for EXPE to test its 100-dma near $122.00 and bounce. Nimble traders could use a rebound off the 100-dma as a new entry point. Otherwise, you may want to wait for a new relative high before considering new 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

chart:




PUT Play Updates

American Express Company - AXP - close: 68.86 change: -1.25

Stop Loss: 70.75
Target(s): To Be Determined
Current Option Gain/Loss: +31.3%
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:
12/12/15: The decline in AXP continued on Friday with a -1.7% drop and a breakdown to new two-year lows. Shares have clearly broken support at $70.00. Tonight we are adjusting the stop loss down to $70.75.

No new positions at this time.

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

12/12/15 new stop @ 70.75
12/08/15 triggered @ $69.75
Option Format: symbol-year-month-day-call-strike

chart:


Bunge Limited - BG - close: 63.96 change: -0.56

Stop Loss: 64.65
Target(s): To Be Determined
Current Option Gain/Loss: +30.4%
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:
12/12/15: BG was downgraded again on Friday. This time Zacks cut their rating on BG to a "strong sell". The stock dipped to new lows but managed to pare its loss to -0.88% by the closing bell. Tonight we are adjusting our stop loss down to $64.65.

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

12/12/15 new stop @ 64.65
12/05/15 new stop @ 67.05
12/03/15 triggered @ $64.85
Option Format: symbol-year-month-day-call-strike

chart:


F5 Networks - FFIV - close: 97.56 change: -1.50

Stop Loss: 102.55
Target(s): To Be Determined
Current Option Gain/Loss: +6.2%
Average Daily Volume = 1.1 million
Entry on December 11 at $98.36
Listed on December 10, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: see below

Comments:
12/12/15: FFIV continued to sink right on cue. The stock actually moved a bit faster than expected with a gap down on Friday morning at $98.36. We were triggered on the gap down since our suggested entry was $98.75. The stock fell to $96.50 before trimming its loss to -1.5%. Broken support at $100.00 should be new resistance.

Trade Description: December 10, 2015:
It has been a frustrating year for bullish investors in FFIV. Shares plunged back in January 2015 on lowered guidance. The stock fought its way back to challenge it all-time highs by July-August only to fail and reverse lower again. Thus far FFIV is down -24% year to date and down -26% from its 2015 highs.

FFIV is in the technology sector. According to the company, "F5 provides solutions for an application world. F5 helps organizations seamlessly scale cloud, data center, telecommunications, and software defined networking (SDN) deployments to successfully deliver applications and services to anyone, anywhere, at any time. F5 solutions broaden the reach of IT through an open, extensible framework and a rich partner ecosystem of leading technology and orchestration vendors. This approach lets customers pursue the infrastructure model that best fits their needs over time. The world's largest businesses, service providers, government entities, and consumer brands rely on F5 to stay ahead of cloud, security, and mobility trends."

The bearish trend could accelerate. I mentioned that the company lowered guidance back in January. The stock surged higher in July on a strong quarterly report and bullish guidance. Unfortunately the was not enough momentum to breakout past its prior highs. The stock market corrected lower in August and FFIV plunged sharply during the market's late August decline.

Ever since the peak this past summer FFIV has been in a bearish trend of lower highs and lower lows. Their most recent earnings report was October 28th. FFIV reported their Q4 earnings of $1.84 a share. That beat estimates by 10 cents. Unfortunately revenues were only up +7.7% to $501 million, which missed estimates. Then management lowered their 2016 Q1 earnings and revenue guidance below Wall Street estimates.

The bearish guidance sparked a sell-off. Then on November 12th FFIV held their analyst/investor day. Wall Street was not impressed. Shares plunged the next day (Nov. 13th) on an analyst downgrade. The stock has seen multiple downgrades since their late October earnings report.

There has been an argument that FFIV should use its large cash hoard for an accelerated stock buyback. The company has about $16 per share in cash. It is possible the stock could pop if they announced a big buy back program although lately buyback headlines have not had much of an impact on investor sentiment. There has also been some speculation that FFIV is a takeover target but so far it's just speculation.

Technically the stock is in a bear market. Shares just spent the last few weeks hovering above support near $100. Now shares have broken down below key, round-number, psychological support at the $100 level. The point & figure chart is forecasting at $93 target. FFIV could easily fall toward $90 or lower. Tonight we are suggesting a trigger to buy puts at $98.75.

- Suggested Positions -

Long JAN $95 PUT (FFIV160115P95) entry $2.10

12/11/15 triggered on gap down at $98.36, suggested entry was $98.75
Option Format: symbol-year-month-day-call-strike

chart:


W.W. Grainger, Inc. - GWW - close: 190.83 change: -3.64

Stop Loss: 195.75
Target(s): To Be Determined
Current Option Gain/Loss: +11.4%
Average Daily Volume = 756 thousand
Entry on December 10 at $192.25
Listed on December 09, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: see below

Comments:
12/12/15: On Friday morning, before the opening bell, GWW released their sales results for November. Their daily sales fell -2% in November 2015 versus a year ago. Excluding recent acquisitions and foreign exchange headwinds, their organic daily sales fell -3%. The stock reacted with a -1.8% drop toward round-number support at $190.00.

Shares could see an oversold bounce here but the $195 area should be new resistance. Tonight we are adjusting our stop loss down to $195.75.

Trade Description: December 9, 2015:
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.

- Suggested Positions -

Long JAN $185 PUT (GWW160115P185) entry $3.50

12/12/15 new stop @ 195.75
12/10/15 triggered @ $192.25
Option Format: symbol-year-month-day-call-strike

chart:



CLOSED BULLISH PLAYS

Salesforce.com, Inc. - CRM - close: 76.87 change: -2.51

Stop Loss: $78.90
Target(s): To Be Determined
Current Option Gain/Loss: -38.2%
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:
12/12/15: CRM delivered a trifecta of underperformance with shares underperforming the market three days in a row. Shares gapped down on Friday morning at $78.30 and plunged to a -3.1% decline. We were stopped out on the gap down.

- Suggested Positions -

Long FEB $85 CALL (CRM160219C85) entry $2.83

12/11/15 stopped out on gap down at $78.30
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: 91.46 change: -1.83

Stop Loss: 91.45
Target(s): To Be Determined
Current Option Gain/Loss: -62.9%
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:
12/12/15: ITW reversed lower on Friday. The stock erased its midweek bounce with a -1.96% drop during the market's widespread sell-off on Friday. Shares broke down below their 200-dma and hit our stop loss at $91.45.

- Suggested Positions -

JAN $95 CALL (ITW160115C95) entry $1.75 exit $0.65 (-62.9%)

12/11/15 stopped out
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:


Netflix, Inc. - NFLX - close: 118.91 change: -4.00

Stop Loss: 119.85
Target(s): To Be Determined
Current Option Gain/Loss: -69.5%
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:
12/12/15: It was an ugly week for NFLX. Investors were selling their winners last week. Shares of NFLX hit new all-time highs on Monday at $133 intraday. Shares ended Friday with a -3.25% loss on the day and a -$14.00 drop (about -10%) from its highs. Our stop loss was hit at $119.85. We warned readers that NFLX was volatile and the stock proved once again it's not an easy stock to trade. The next level of support for NFLX appears to be the $115.00 area.

- Suggested Positions -

JAN $140 CALL (NFLX160115C140) entry $4.55 exit $1.39 (-69.5%)

12/11/15 stopped out @ 119.85
12/07/15 triggered @ $132.55
Option Format: symbol-year-month-day-call-strike

chart: