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Daily Newsletter, Tuesday, 12/15/2015

Table of Contents

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

Market Wrap

Announcement Drift

by Jim Brown

Click here to email Jim Brown

The "Pre-FOMC Announcement Drift" was in full swing today with the major indexes up strongly. Rising energy stocks helped to lift the market as oil rose $1 intraday.

Market Statistics

The Dow gained +156 for the day but it still finished -101 points off its highs and the Nasdaq closed -26 points off its high but with a respectable +43 point gain. The markets gapped open after a strong day in the overseas markets. With all the markets seriously oversold, it was a global short squeeze.

It was surprising for the Dow to be up so strongly at the open after a warning from 3M (MMM) sent that stock down -$9.50. That equates to about -65 Dow points. The company said the revisions reflect "the realities of a continued slow-growth global economy." Even worse, the company said global demand for smartphones and other electronics had weakened.

3M cut guidance in October from $7.73-$7.93 to $7.73-$7.78. Today they cut the outlook to $7.55 with full year revenue growth of 1% compared to 1.5% to 2.0% in October. The analyst consensus was $7.77. For 2016, the company guided to $8.10-$8.45 and analysts were expecting $8.40.


Apple shares lost -$2 on the 3M comments about slower smartphone sales. Market tracker IDC said iPhone sales growth would slip into single digits for the first time in Q4 and will decline in 2016.

Chipmaker Dialog Semiconductor (DLGNF), an Apple supplier, warned after the close that revenue would be in the range of $390-400 million compared to prior guidance for $430-$460 million. They blamed the drop in revenue on "weaker than expected demand." Analysts believe the impact from Apple will be in Q1 rather than Q4 since those chips were sold a long time ago. This would suggest iPhone sales could be down 9% in Q1. Some analysts have speculated in recent days that we could see a -15% iPhone decline in Q1.

Susquehanna Financial cut iPhone sales estimates for Q4 from 75 million to 70 million and Q1 sales from 58 to 55 million. Consensus estimates are for 77 million and 60 million.


On the economic front the Consumer Price Index (CPI) for November was flat with no gain after a +0.2% gain in October. Food declined -0.1% and energy -1.3%. Core CPI, ex food and energy, rose +0.2%. Goods declined-0.2% and services rose +0.3%.

Year over year the headline rate is up only +0.4% while the core rate is up +2.0%.

The NY Empire State Manufacturing Survey for December rose from -10.7 to -4.6 but remains in contraction for the fifth consecutive month. Conditions seem to be improving. New orders rose from -11.8 to -5.1 and back orders rose from -18.2 to -16.2. However, employment fell from -7.3 to -16.2.

While the headline number posted the biggest gain since February, it remains in contraction territory and suggests manufacturing in New York is recovering very slowly. There is light at the end of the tunnel but it is too soon to know if it is daylight or a train. The report was ignored.

The NAHB Housing Market Index for December declined from 62 to 61 and the second monthly decline since the ten-year high at 65 in October. Analysts had expected a +2 point gain. Buyer traffic fell from 48 to 46 but that is typical for the fall months. All regions declined except for the South, which was flat at 62. The report was ignored.

All of the economic reports were ignored because everyone is focused on the FOMC announcement on Wednesday afternoon. In the latest survey, 95% of those surveyed expect the Fed to hike rates. I cannot remember a time when the market would rally this strongly ahead of an almost certain rate hike.

The two reports on Wednesday morning will also be ignored unless there are some really ugly numbers. All we have to worry about now is whether there will be a sell the news event or a buy the news event at 2:PM on Wednesday. Quite a few analysts believe the rate hike is priced in and we could see a sell the news event. Regardless of the eventual direction, we know there will be some significant volatility on the announcement and press conference that follows.


In stock news, Sirius XM Holdings (SIRI) shares surged at the open on news Howard Stern had signed another five-year contract. No numbers were given but it is estimated he will get a bump from his current $80 million a year to $90 million. This was a self-defense move by Sirius. Howard is their number one draw and should he decide to retire it would be very painful for Sirius.


Intercept Pharmaceuticals (ICPT) spiked 17% on short covering after a rumor surfaced saying Shire Plc (SHPG) might be interested in acquiring Intercept. There was no real news, only the rumor in trading circles. Intercept has a promising pipeline of drugs that could make it a takeover candidate. However, shares have been plunging since $497 high in 2014. Shares hit $315 in May of this year and closed at $139 yesterday.


Expedia (EXPE) shares rallied almost $9 intraday after the company said it had completed the HomeAway acquisition. That company is a competitor to AirBnB and with Expedia's advertising and market reach it should be a huge boost to their business. Expedia said 63,068,486 shares of HomeAway stock or 64.8% were tendered in the share exchange offer.


Baker Hughes and Halliburton (BHI/HAL) were halted intraday on news the Dept of Justice may not approve the $35 billion Baker Hughes acquisition. The deadline for approval was today. The companies said they met with the DOJ and jointly extended the deadline until April 30th. The DOJ informed the companies that the antitrust remedies they have proposed to date are insufficient to address the competitive concerns of the DOJ. The companies said they would reassess and present some additional options in January.

Australia has delayed its decision until Dec 17th after asking for more information. Brazilian regulators challenged the transaction on Dec 7th and a final decision could take as long as another 240 days. The transaction has been approved in Canada, Columbia, Kazakhstan, South Africa and Turkey. Halliburton has agreed to divest $7.5 billion in assets. The value of the deal, announced in November 2014, has declined from $34.6 billion to $26 billion because of the delay and the drop in oil prices. Halliburton will have to pay $3.5 billion as a breakup fee if they cannot get regulatory approval. Shareholders of both companies have approved the transaction.



Stamps.com (STMP) rallied +6.50 to a new high on no news. The fourth quarter is normally a good quarter for STMP because of all the package shipping done through their postage application. Apparently, investors were looking for some winners to stuff into their stockings and a short squeeze was born.


Lumber Liquidators (LL) spiked +25% to $17.50 after short seller Whitney Tilson changed his view. The hedge fund manager had been leading the charge against LL after he found out there were excess levels of formaldehyde in the LL flooring it bought from China. Tilson said the stock was going to zero and shares plunged from $70 to $13. In a blog post Tilson said he had covered his short after he "received information" that the company's management was not aware that the product they were selling contained those high levels. Originally, he thought the product was bought with full knowledge because it was cheap.

Tilson said the company was "sloppy and naive, but not evil" as he had previously claimed. While it would appear the problem is over for LL that is far from the case. More than 10,000 customers have demanded replacement floors and there will be consumer litigation. California regulators are still testing the various wood samples and floors that were sold and there will probably be some fines there as well.


The high yield implosion claimed a third fund on Monday but the major ETFs were up today. How quickly investors forget bad news when it does not concern them. Some analysts were calling the drop in HYG and JNK a buying opportunity.

The original fund that started the crisis was the Third Avenue Focused Credit Investment Fund (TFCVX). That fund is closed to redemptions and shares closed at $6.48 on Friday. The high for the fund share was $12.30 in June 2014.


Boeing (BA) rallied more than 2% today after they raised their dividend after the close on Monday by 20% to $1.09 and increased their stock buyback plan from $12 billion to $14 billion. The dividend will be paid March 4th to holders on February 12th. Friday morning China Postal agreed to buy 10 next generation 737 freighters. No financial details were released.


Valeant Pharmaceuticals (VRX) rallied +16% after it struck a deal directly with Walgreens to distribute its drugs. This eliminates the middlemen in the drug distribution network. Valeant will cut prices 10% to Walgreens for branded drugs. Generic drug prices will be reduced from 5% to 95%. The deal is structured for 20 years and covers more than 8,000 Walgreen's locations.


Oil producer Magnum Hunter Resources (MHR/MHRC) filed for Chapter 11 bankruptcy in a plan to slash debt after the company ran out of cash. The company entered into a prepackaged deal to convert $1 billion in debt into equity. Other companies that have filed bankruptcy this year include Samson Resources, Sabine Oil & Gas, Quicksilver Resources and Energy & Exploration Partners. MHR changed symbols in October to MHRC.


Qualcomm (QCOM) said it has decided not to split up its business. The company was planning to separate into a chipmaking company and a technology licensing business. After a six month review forced by Jana Partners they elected to pass on the split. The company also raised its earnings guidance to "at or modestly above" the high end of prior forecasts. Those forecasts were for a profit of 80-90 cents.


Yelp (YELP) shares fell -9% after Facebook debuted a competing service that does essentially the same thing. The new service will help users find local businesses based on customer reviews. Facebook has not yet announced the service but it is up and running at this LINK


Late in the afternoon Advance Auto Parts (AAP) rose +6% or $8 to $157 on speculation it had been approached by a buyer. StreetInsider reported the company had been approached and was exploring a sale. The prospective price mentioned was $200 a share. However, shares crashed back to $146 right at the close of the afterhours session on no news. I would speculate that the company told someone there was no truth to the rumor but that would be speculation. AAP shares traded over $200 in November.


Tesla's CEO Elon Musk is out there on the leading edge once again. He warned that World War III could block the colonization of Mars. He warned that the colonization of Mars could be delayed, possibly indefinitely, if not done soon. He said "there is a window that could be opened for a long time or a short time where we have an opportunity to establish a self-sustaining base on Mars..before something happens to drive the technology level on Earth below where it is possible."

Musk believes a major cataclysm on Earth, natural like a solar storm or man-made like a world war could happen in the near future. Having a human colony in space would ensure the long-term survival of mankind. "You back up your hard drive, maybe we should back up life, too."

You have to give Musk credit he is always thinking out of the box. Paypal, Tesla, SolarCity, SpaceX, Hyperloop, Gigafactory, etc, and that is just a few things he has created.


Crude oil rebounded from Monday's seven-year lows at $34.53 to an intraday high of $37.88 in a flurry of short covering. However, prices declined at the close to $37.32 and then another -50 cents in afterhours to $36.86. There is no reason for crude oil to rise. The inventory decline reported last week of -3.6 million barrels was a bad number. The refinery inputs declined -150,000 bpd rather than increased and the imports rose +270,000 bpd. There is no way inventories could have declined that much. These things happen sometimes where an inventory report from a refiner or pipeline company gets overlooked and the numbers come out wrong.

After the bell today, the API Inventory showed a build in inventories of +2.3 million barrels for the week ended on Friday. This caused oil prices to decline in afterhours ahead of the more important EIA report on Wednesday morning.

As I have reported before, crude futures tend to rise on Tuesdays ahead of the inventory reports as traders cover their shorts.

There are a growing number of analysts that are now expecting oil to dip under $30. Not by much and not for long but they are expecting the dip. The recession low was $32 and that is pretty much a sure thing. The under $30 forecast is possible and I think it would mark a bottom at $30.


Markets

I explained the "Pre-FOMC Announcement Drift" in the weekend commentary. Given how oversold the market was on Friday I am not surprised to see a decent rebound ahead of the announcement. However, as I mentioned above there is always the chance for a sell the news event. I believe that would happen if the Fed did not hike. I am leaning towards a post announcement rally this time "depending" on the commentary that surrounds any rate hike.

The general consensus is a 25 point hike and then three more in 2016, probably on a quarterly basis. If Yellen lays out a slow path to normalization, I think the market will breathe a sigh of relief and probably continue higher. If the Fed tries to be cute and tease with the timing of the next hike, I think the market will react negatively.

The S&P came very close to support at 1,990 on Monday and then rebounded back over prior support at 2,020. Tuesday's +21 point gain put the index back over higher support at 2,040. I would be very pleased to see this trend continue at 2,060 and 2,080 but the Fed is a huge hurdle to that scenario.

Those levels now represent resistance with 2,080 the strongest.


The Dow performed amazingly well given the 3M anchor knocking off about 65 points. The index rebounded to resistance at 17,600 and came to a dead stop. That was about a +250 point intraday gain and somewhat over extended. The Dow has decent resistance at 17,700 area give or take a few points. The Monday dip to 17,130 was strong support and the rebound was instant.

I would like to tell you the Dow was going to break over that level and retest downtrend resistance at 17,850 but it all depends on how the market reacts to the Fed decision.



The Nasdaq Composite spent most of the day over 5,000 but could not hold it at the close. The high was 5,026 and that will be our first resistance point on any continued rally on Wednesday. Real resistance is 5,100 and that is not likely to be broken easily.

The majority of our gain today was short covering. The Nasdaq gapped open from 4,950 to almost 5,000. That is not because investors suddenly wanted to buy tech stocks. The big market gains overseas had the S&P futures up +12 points in the early morning hours and it grew from there. Anyone short at the open lost money.



On Sunday, I said I would be a dip buyer of QQQ calls at 4,500 on the Nasdaq 100. On Monday, the index dropped sharply at the open to 4,478 giving everyone a perfect opportunity to take advantage of that recommendation.

The NDX gapped open to 4,607 today and spent all day above 4,600 until a sell program at the close knocked it back to 4,597. That makes our intraday high at 4,636 resistance on the next move higher with 4,700 the really tough resistance to break.


The best news of the day was the +16 point rebound in the Russell 2000. It was looking very grim at the close on Monday and the late December Russell rally was still a no show. The +1.4% rebound was the most of the major indexes. However, it has a long way to go before we can claim a recovery. One day does not make a trend. One day is just short covering.


The biggest market mover for the day was the Biotech sector. The $BTK rallied +3.3% after two weeks of constant decline. I looked at dozens of biotech stocks and quite a few had multiple dollar moves and most were gaps at the open. The BTK gapped up +100 points at the open so it was definitely short covering. I hope it continues since it provided a lot of motive power to the Russell and the Nasdaq.


There is no way to speculate on the market for Wednesday. The futures have been positive and negative since the close but none of that counts. The only factor for market movement on Wednesday is what happens at 2:PM when the Fed decision is released. Despite today's short squeeze, we are still somewhat oversold. That could give us a slight upward bias when the volatility kicks in. Normally there is a spike in both directions immediately after the announcement regardless of what that announcement says. That could trigger some additional short covering but any spike will also be bear bait.

I know it is tempting to bet on the market direction after the announcement. I would recommend against it. This is effectively a coin toss and you are probably betting money you could use for your retirement. I have found that it is easier to overcome the urge to bet the outcome if you just make it a game and buy one contract of something and realize that if you are wrong you will lose and it is not a big loss. If you bet right, then take your wife to dinner and tell her how smart you were. (grin)

I want to thank everyone once again for supporting the Option Investor family of newsletters. Reward yourself now for 2016 and that will be one less item on your list of New Year's resolutions. Receipts are available for deducting on your taxes.

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Enter passively, exit aggressively!

Jim Brown

Send Jim an email

 


New Option Plays

Outperforming Its Peers

by James Brown

Click here to email James Brown

Editor's Note:

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

Bullish ideas: NOC, BDX, PG, STZ, CHKP, ULTI




NEW DIRECTIONAL CALL PLAYS

Dr Pepper Snapple Group - DPS - close: 93.33 change: +1.50

Stop Loss: 89.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.2 million
Entry on December -- at $---.--
Listed on December 15, 2015
Time Frame: Exit PRIOR to earnings in February
New Positions: Yes, see below

Company Description

Trade Description:
Huge beverage companies like Coca-Cola (KO) and Pepsi (PEP) used to be considered safe haven trades because consumers would continue to buy soft drinks no matter what the economy was doing. Things have changed. Now more and more consumers are avoiding high-calorie cola drinks. These companies have been forced to expand into non-cola product lines. KO and PEP are also suffering from the impact of the strong dollar, which makes their products more expensive overseas. Year to date KO is up +2% and PEP is up +5%. Smaller rival DPS is up +30% this year.

DPS is in the consumer goods sector. According to the company, "Dr Pepper Snapple Group is a leading producer of flavored beverages in North America and the Caribbean. Our success is fueled by more than 50 brands that are synonymous with refreshment, fun and flavor. We have 6 of the top 10 non-cola soft drinks, and 13 of our 14 leading brands are No. 1 or No. 2 in their flavor categories. In addition to our flagship Dr Pepper and Snapple brands, our portfolio includes 7UP, A&W, Canada Dry, Clamato, Crush, Hawaiian Punch, Mott's, Mr & Mrs T mixers, Penafiel, Rose's, Schweppes, Squirt and Sunkist soda."

One reason DPS is outperforming its peers is the company's focus on the U.S. Almost 90% of DPS' revenues are from the United States, which means the strong dollar doesn't really affect it very much. It doesn't hurt that business has been steadily growing. DPS has beaten Wall Street earnings estimates the last three quarters in a row. Their most recent earnings report was October 22nd. DPS announced their Q3 results with earnings of $1.08 a share. That was five cents above expectations. Revenues rose +3% to $1.63 billion, also above estimates. Management then raised their full year guidance above analysts' estimates.

The market reacted to its strong Q3 report and bullish guidance by launching DPS shares to new all-time highs. There was some normal post-earnings profit taking but investors have started consistently buying the dips in DPS' stock. Now shares are breaking out to new all-time highs again. Meanwhile Wall Street analysts have been raising their earnings estimates on the company, which is normally bullish.

Technically the stock is showing significant relative strength this year. The point & figure chart is bullish and forecasting at $124.00 target. Traders just bought the dip at round-number support near $90.00. DPS could benefit from some window dressing before the quarter ends on December 31st. If the Fed raises rates the dollar should rally. Investors looking to avoid the impact of the dollar might also see DPS as a buy. Today's intraday high was $93.84. I'm suggesting a trigger to buy calls at $94.05.

Trigger @ $94.05

- Suggested Positions -

Buy the FEB $95 CALL (DPS160219C95) current ask $2.75
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 Surge On Oil's Oversold Bounce

by James Brown

Click here to email James Brown

Editor's Note:

Crude oil snapped a six-day decline with a way overdue bounce on Tuesday. This helped fuel an equity rebound and the major U.S. indices surged this morning.

SPY has been removed. The trade did not open.
AXP and GWW hit our stop loss.


Current Portfolio:


CALL Play Updates

AmerisourceBergen Corp. - ABC - close: 101.69 change: -0.84

Stop Loss: 99.25
Target(s): To Be Determined
Current Option Gain/Loss: -19.4%
Average Daily Volume = 2.2 million
Entry on December 15 at $103.02
Listed on December 12, 2015
Time Frame: Exit PRIOR to earnings in late January
New Positions: see below

Comments:
12/15/15: The stock market surged higher at the opening bell. ABC actually gapped higher at $103.02. Shares almost made it to $103.50 before reversing lower. The relative weakness in ABC today (-0.8%) is concerning especially since our trade is now open. We had a suggested entry point at $102.85 and the gap higher this morning opened our play.

Technically today's move has generated a bearish engulfing candlestick reversal pattern but it needs to see confirmation. At the moment I'd wait for a new rally above $103 before considering new bullish positions.

Trade Description: December 12, 2015:
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.

- Suggested Positions -

Long FEB $105 CALL (ABC160219C105) entry $3.10

12/15/15 Caution - ABC has produced a bearish engulfing candlestick reversal pattern
12/15/15 triggered on gap higher at $103.02, trigger was $102.85
Option Format: symbol-year-month-day-call-strike


Clovis Oncology - CLVS - close: 33.42 change: +2.27

Stop Loss: 30.75
Target(s): To Be Determined
Current Option Gain/Loss: -13.8%
Average Daily Volume = 1.4 million
Entry on December 01 at $32.55
Listed on November 28, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: see below

Comments:
12/15/15: Biotech stocks showed relative strength on Tuesday with a widespread bounce among the group. CLVS outperformed most of its peers with a +7.2% gain. The rally today appears to break the two-week trend of lower highs. I would not chase it here.

After the closing bell CLVS announced that the FDA has extended their new Drug Application for Rociletinib for an additional three months. This gives the company more time to produce new information requested by the FDA.

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

12/14/15 new stop @ 30.75
12/05/15 new stop @ 29.65
12/01/15 triggered @ $32.55
Option Format: symbol-year-month-day-call-strike


Domino's Pizza, Inc. - DPZ - close: 109.93 change: +0.55

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:
12/15/15: DPZ gapped higher at the open near $110. Shares spent the rest of the day hovering near the $110 level. We are waiting on 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


Expedia Inc. - EXPE - close: 130.24 change: +5.94

Stop Loss: 127.85
Target(s): To Be Determined
Current Option Gain/Loss: +47.4%
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:
12/15/15: EXPE shares had a big day. The market appears to be cheering the company as EXPE announced they had completed their acquisition of HomeAway today. This makes EXPE a much stronger competitor against AirBnB in the alternative housing industry. Shares of EXPE surged +4.77% and tagged the $132.00 level intraday before trimming its gains.

Tonight we are adjusting the stop loss up to $127.85.

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

12/15/15 new stop @ 127.85
12/09/15 triggered @ $126.75
Option Format: symbol-year-month-day-call-strike


Netflix, Inc. - NFLX - close: 118.60 change: -2.07

Stop Loss: 114.45
Target(s): To Be Determined
Current Option Gain/Loss: -33.9%
Average Daily Volume = 20.4 million
Entry on December 15 at $122.05
Listed on December 14, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: see below

Comments:
12/15/15: The stock market's spike higher this morning lifted NFLX to $123.30. Our trigger to buy calls was hit at $122.05. Unfortunately the rally in NFLX reversed. Shares sank -1.7%. That doesn't bode well with NFLX closing back under the $120 level. If this decline continues the next stop could be support near $115.00.

No new positions at this time.

Trade Description: December 14, 2015:
If at first you don't succeed, try, try again.

Last week's surge in market volatility shook us out of our bullish NFLX trade. Today we want to try again.

Here is an updated play description:
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.

I want to remind readers that NFLX has proven over and over that it is a very volatile stock. This can make it difficult to trade. I am suggesting small positions to limit risk.

Today saw shares of NFLX spike down toward its previous highs (prior resistance) and now new support in the $115.00 area. The stock bounced and shares rebounded back into positive territory. Technically this rebound looks like a short-term bottom. We are suggesting a trigger to buy calls at $122.05. We will start with a stop loss just below today's low.

- Suggested Positions -

Long JAN $130 CALL (NFLX160115C130) entry $3.75

12/15/15 triggered @ $122.05
Option Format: symbol-year-month-day-call-strike




PUT Play Updates

Bunge Limited - BG - close: 62.58 change: +0.77

Stop Loss: 64.65
Target(s): To Be Determined
Current Option Gain/Loss: +39.1%
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:
12/15/15: BG followed the market higher this morning but there wasn't much follow through and the rally stalled. Shares added +1.24% but today's move was inside yesterday's range.

BG should find technical resistance at its 10-dma near $63.75 on any additional bounce.

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


F5 Networks - FFIV - close: 99.75 change: +3.44

Stop Loss: 102.55
Target(s): To Be Determined
Current Option Gain/Loss: -27.6%
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:
12/15/15: Ouch! FFIV bounced in a big way today. We expected some weakness on news last night the company's CEO had abruptly left the company. FFIV's chairman and prior CEO retook the helm. There was speculation this morning that new management might be more open to selling the company. Naturally the stock surged on hopes for potential M&A.

The stock erased a big chunk of the prior three-day loss. FFIV hit an intraday high of $100.75. Tonight we are moving our stop loss down to $100.85. No new positions at this time.

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

12/15/15 FFIV bounced on news of its CEO change
12/11/15 triggered on gap down at $98.36, suggested entry was $98.75
Option Format: symbol-year-month-day-call-strike



CLOSED BULLISH PLAYS

SPDR S&P 500 ETF - SPY - close: 205.03 change: +2.13

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: see below

Comments:
12/15/15: Today's move in the SPY was frustrating. We were expecting a bounce but the ETF moved too fast.

Here is our normal entry point disclaimer:
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.

Our suggested entry trigger was $203.25. Sadly the SPY gapped higher at $204.70. Our trade did not open.

Tonight we are removing SPY as a candidate.

Trade did not open.

12/15/15 removed from the newsletter, suggested entry was $203.25

chart:


CLOSED BEARISH PLAYS

American Express Company - AXP - close: 70.15 change: +1.32

Stop Loss: 69.75
Target(s): To Be Determined
Current Option Gain/Loss: -4.3%
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:
12/15/15: Financials displayed relative strength on Tuesday. AXP almost kept pace with its peers with a +1.9% gain. Last night we moved our stop loss down to $69.75. This morning the stock gapped open higher at $69.75 immediately stopping us out.

- Suggested Positions -

JAN $70 PUT (AXP160115P70) entry $2.08 exit $1.99 (-4.3%)

12/15/15 stopped out
12/14/15 new stop @ 69.75
12/12/15 new stop @ 70.75
12/08/15 triggered @ $69.75
Option Format: symbol-year-month-day-call-strike

chart:


W.W. Grainger, Inc. - GWW - close: 194.58 change: +0.45

Stop Loss: 195.75
Target(s): To Be Determined
Current Option Gain/Loss: -48.6%
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:
12/15/15: GWW underperformed the market with a +0.2% gain versus the S&P 500's 1.0% rally. Unfortunately GWW did see an intraday rally to $195.95. Our stop loss was hit at $195.75.

- Suggested Positions -

JAN $185 PUT (GWW160115P185) entry $3.50 exit $1.80 (-48.6%)

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

chart: