Option Investor
Newsletter

Daily Newsletter, Monday, 12/21/2015

Table of Contents

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

Market Wrap

Santa Rally

by Thomas Hughes

Click here to email Thomas Hughes
Only three days left till Christmas; Holiday conditions are in effect, low volume and big swings are two things we might expect this week.

Introduction

The Santa Rally got off to a shaky start today. Price action was largely to the upside but low volume and big swings point to Holiday trading conditions so I wouldn't read to much into it just yet. There are only two full days of trading left this week, and a half day on Thursday, so I expect to see volume remain low.

Market Statistics

The morning got off to a relatively quiet start. There was little in the way of international news, Asian and European indices were mostly higher, and our indices were indicated to open with gains as well. The most closely watched headline of the morning was oil prices, with a lot of chatter focused on Star Wars and Disney. I saw it on Saturday, Star Wars, liked it and will probably go see it again further entrenching it as the largest opening weekend box-office take of all time.

An early rally in futures led to a higher open for the indices and an initial gain for the broad market of 0.75%. Today's high was hit within the first 3 minutes of trading and held for the first hour of the day. At 10:35 a test of the high was met by sellers, or maybe just a complete lack of buyers, which were able to drive the indices back down to break even. Break even levels were able to hold going into the lunch hour, after which the indices tried to stage another rally. This time resistance set in at a lower level and the indices fell once again to break even. By 3:30PM bottom had once more been hit, slightly higher than the first time, resulting in another attempt at rally. The last half hour of trading saw the indices move up off the low and close near the high of the day.

Economic Calendar

The Economy

No economic data was released today but there is quite a bit due out this week. On top of that the holiday week means the market is closed on Friday, half day on Thursday, and all the data will be squeezed into the next three days. Tomorrow is the 3rd revision to 3rd quarter GDP, expectations are for it to hold steady at 2.1%, along with existing home sales. Wednesday is personal income and spending, durable goods, new home sales and Michigan Sentiment. Thursday is jobless claims.

Moody's Survey of Business Confidence by -1.3% to 32.5, an historically high number but well off the highs we saw earlier this year. Based on this survey global confidence has hit a new low and is being driven lower by declines in all nine questions of the survey. Pricing power is the biggest contributor to falling sentiment while demand for office space remains the strongest. In this week's summary Mr. Zandi mentions terrorism as another cause of declining sentiment which led me to some tangental research. I began looking up terror attacks and discovered a data base at the University of Chicago and other information on suicide bombings. There has been an average 1.8 suicide bombing per DAY in 2015, up nearly 50% from last year at this time.


According to FactSet 12 S&P 500 companies have reported for the fourth quarter. Of those 8 have beaten earnings expectations and only 5 have beaten on revenue. There are 4 due out this week including 1 Dow Component. The expected rate of earnings growth for the entire index is now -4.5%, down -0.2% from last week. The blended rate continues to move lower and will likely remain negative until the end of the reporting season. Things to look out for this time around include currency exchange/strong dollar, lower energy cost and rising wages. Energy s expected to be the laggard in terms of growth at -66.01%, down -6% from last week. Ex-energy 4th quarter projections are near 1.1%.


Earnings growth is expected to return in the 1st quarter of next year but projections are still falling. First quarter and full projections both fell by -0.2% this week. First quarter earnings are projected to grow by 1.5%, full year 2016 by 7.7%. The estimates are being hurt by energy which is now expected to see earnings decline by -9% in 2016. Energy had been estimated to see earnings growth as high as 50% earlier this year.


The Oil Index

Oil prices dragged on the market again today. WTI fell more than -1% to trade below $34.50 early in the day, with Brent falling more than -1.5% to trade below $36.50, all on bearish supply/production/demand fundamentals. Later in the day prices rebound to close a penny above break even. Outlook for 2016 demand growth remains tepid with no indication of declining supply so I think oil could go lower.

The Oil Index fell -0.75% in today's session and set a new nearly 3 month low. Today's action brings the index closer to support targets near 1,000 - 1,025 with bearish indicators. Both MACD and stochastic are pointing to lower prices although there is some sign that support will hold. MACD is diverging from prices, a sign that the sell-off is losing momentum and ripe for reversal, while stochastic is in oversold territory. The caveat is oil prices, if oil prices continue to fall support could be broken and lead the index lower.


The Gold Index

Gold prices continued to bounce today after advancing more than 1% on Friday. Today spot prices rose another +1.25% to $1080 but remains below resistance targets. The move is in response to a softening of the dollar and some weaker than expected data last week. Now that the FOMC has raised rates the first time speculation has shifted to when the next hike will come and how many basis points we'll see in total for 2016. Weak data will mean a slower rate of pace, fewer basis points and softer dollar values versus strong data and strong dollar. At the same time the ECB will need to be watched for signs of additional QE, or that economic recovery is taking hold. For now, FOMC and ECB policy remains divergent so I see the dollar getting stronger and gold moving lower. My current resistance target for gold is near $1090, and then $1100. A break above these levels could take it up to $1125.

The gold miners got a lift from gold's rally but remain near the long term low and indicated lower. Today's action produced a gain greater than 1.25% but also a spinning top candle below the short term moving average. Adding to this, stochastic has been moving lower for over a week and today was confirmed by a bearish MACD crossover. This in line with the underlying long term down trend but may be a false signal in the near to short term, while gold prices are bouncing. If gold prices keep moving higher this ETF will likely follow it. The near to short term trend is sideways/range bound so we could easily see this continue over the next few weeks.


In The News, Story Stocks and Earnings

The Dollar Index lost about -0.25 to trade near $98.50 and a possible support level. The index appears to be testing support after breaking above the short term moving average and $98.50 in response to the FOMC rate hike last week. Stochastic is pointing to higher prices in the near and short term with MACD on the cusp of confirming. A bounce from here could take the index back to test its highs again.


Shares of Disney got hammered again today as investors weigh the negatives inherent in ESPN with the positives of Star Wars. The analysts can't agree. On the one side bearish analysts are saying Star Wars won't off-set weakness in the media branch of the business while on the other bullish analysts think Star Wars is going to do even better than previously expected with upside targets for stock price near $130. Today the stock lost about -1%, after an initial push higher, to trade at a +2 month low near $106.75. The indicators are bearish and pointing to lower prices but divergence suggests support is near $105.


Cintas, supplier of rental uniforms, first aid supplies and other services for employers reported earnings after the bell on top of another announcement this morning detailing an acquisition. The company reported better than expected with nice gains in margin, operating income and organic growth. Net income was up $12 million with EPS of $1.03, up 19.75% from last year. Shares of the stock opened the day with a gain near 1% and then traded mixed throughout the day. There was little movement following the release.


In terms of earnings growth consumer discretionary is expected to lead the market in 2016. Full year growth is expected to be in the range of 14.8%, outpacing materials and healthcare. Revenue is expected to grow at a slower pace, 6.1%, but still top three for the year. For the upcoming reporting season, calendar 4th quarter 2015, earnings growth is 5.8%, 3rd behind telecom and financials, on revenue growth of 3.8%. Today the sector gained 0.5% but looks like it might be heading lower. Support is currently indicated along the $77.50 level with bearish indicators. A break below here could take it down to $75 or lower.


The Indices

Today's action was typical holiday trading. Volume was incredibly low which led to some wild swings in the market. First up, then down, then back up, led by the NASDAQ Composite. The tech heavy index made a gain of 0.93% in a move that confirms support just below the long term up trend line. The indicators are mixed in their strength but both pointing lower so this support, near 4,925, could be tested again. A break below this level could take the index down to the 4,800 level. Resistance is the up trend line near the 4,990 level, about 25 points above today's close.


The next largest move in today's session was the S&P 500. The broad market gained 0.78% in a move that bounced off support just above 2,000 and closed above y 2,020 support/resistance line. The index appears to be confirming support at 2,000 but with the low volume the strength of the support is questionable. The indicators remain bearish and pointing lower so support could be tested again, divergences in MACD suggest it will hold, at least for now. The index appears to be consolidating along the long term trend line so any test of support is a likely buying opportunity.


The Dow Jones Industrial Average made today's third largest gain. The blue chips closed with a gain of 0.72% and regained the 17,250 level. Despite the gain the indicators remain bearish with a slight uptick in momentum so another dip below 17,250 is likely with a possible target as low as the long term uptrend line. The trend line is in the range of 16,750 and the top of the September bottoming pattern so support here could be strong. If the bounce continues next resistance is near 17,500.


The days smallest gain was made by the Dow Jones Transportation Average. The transports gained 0.70% but remain below last weeks broken support target of 7,500. The index has made a new low and indicators are bearish so today's bounce looks like it will be short lived. Down side target is near 7,250 with the danger that the transports could lead the whole market lower.


The bulls tried to get a Santa Rally in gear today but just couldn't do it. Regardless, Holiday trading rules apply as we have definitely entered a period of low volume. Today's action, while bullish, left the indices looking rather poorly but this should be taken in the context of holiday trading. The next two weeks, until after the first of the year, will likely see range bound trading driven by news, economic data releases and expectations for earnings and next year. Support and resistance targets will be important to watch and there could be some big swings in direction.

Economic trends remain positive, as does expectation for next year, so I remain a bull in the long term. In the near and short term I remain cautious. The upcoming earnings season is not going to be pretty, it will most likely turn out better than currently expected, but not pretty, so there is risk of additional consolidation and/or correction in the indices once it begins.

Tomorrow's focus will be the data, and a few earnings reports. GDP makes a big headline, even if it is the third estimate, consensus is for it to hold steady with the last estimate. Along with that, and maybe more important, is existing home sales data, more important because it is a lot more current than a twice revised estimate for last quarter. Earnings reports are light in number but make up for it with names like Micron and Nike.

Until then, remember the trend!

Thomas Hughes

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New Option Plays

Forecasting Its 7th Year Of Record Performance

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: MCK, SJM, HRS, KMB, COL, PG, STMP, MSCI, DGX, ALK, RCL, NOC,




NEW DIRECTIONAL CALL PLAYS

Spectrum Brands Holdings - SPB - close: 100.13 change: +1.93

Stop Loss: 97.40
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 257 thousand
Entry on December -- at $---.--
Listed on December 21, 2015
Time Frame: Exit PRIOR to earnings in February
New Positions: Yes, see below

Company Description

Trade Description:
Shares of SPB are on track for their fourth year of gains. The stock is currently up +4.6% year to date versus the S&P 500, which is down -1.8%. More importantly SPB is breaking out from a four-month consolidation.

SPB is in the consumer goods sector. According to the company, "Spectrum Brands Holdings, a member of the Russell 2000 Index, is a global consumer products company offering an expanding portfolio of leading brands providing superior value to consumers and customers every day. The Company is a leading supplier of consumer batteries, residential locksets, residential builders' hardware, plumbing, shaving and grooming products, personal care products, small household appliances, specialty pet supplies, lawn and garden and home pest control products, personal insect repellents, and auto care products. Helping to meet the needs of consumers worldwide, our Company offers a broad portfolio of market-leading, well-known and widely trusted brands including Rayovac®, VARTA®, Kwikset®, Weiser®, Baldwin®, National Hardware®, Pfister®, Remington®, George Foreman®, Russell Hobbs®, Black+Decker®, Farberware®, Tetra®, Marineland®, Nature's Miracle®, Dingo®, 8-in-1®, FURminator®, IAMS®, Eukanuba®, Digesteeze®, Healthy-Hide®, Littermaid®, Spectracide®, Cutter®, Repel®, Hot Shot®, Black Flag®, Liquid Fence®, Armor All®, STP® and A/C PRO®. Spectrum Brands' products are sold by the world's top 25 retailers and are available in more than one million stores in approximately 160 countries. Based in Middleton, Wisconsin, Spectrum Brands Holdings generated net sales of approximately $4.43 billion in fiscal 2014."

SPB has struggled to meet analysts estimates recently, likely due to the impact of the strong U.S. dollar on its foreign sales. They reported their Q3 results on August fifth and missed the EPS by a penny while revenues were up +10.5% to $1.25 billion, just ahead of expectations. Fast-forward three months and SPB reported its Q4 results on November 19th. Earnings of $1.13 a share missed estimates by three cents. Revenues were up +11.0% to $1.31 billion but that came in below estimates.

SPB management pointed out that Q4 2015 saw gross profits rise +13.6% from a year ago while gross margins improved from 34.9% to 35.7%. Management also forecasted 2016 sales in the high-single digit range (compared to mid-single digits for 2015). According to SPB's earnings press release they believe 2016 will be their 7th consecutive year of record performance, including free cash flow rising into the $505-515 million range, up from $454 million in 2015.

The stock rallied sharply on this earnings report. In mid December shares broke through resistance following an analyst upgrade. The stock has now rallied through technical resistance at all of its key moving averages. It has also broken through resistance in the $96-98 region. The point & figure chart is bullish and forecasting at $120 target. Today's intraday high was $100.21. We are suggesting a trigger to buy calls at $100.55.

Trigger @ $100.55

- Suggested Positions -

Buy the APR $105 CALL (SPB160415C105) current ask $$3.30
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 Deliver Minor Bounce From Support

by James Brown

Click here to email James Brown

Editor's Note:

After last week's reversal lower it was encouraging to see stocks bouncing today. The S&P 500 rallied from the 2,000 area. The small cap Russell 2000 index bounced off short-term support near 1,120.

RYAAY was triggered.


Current Portfolio:


CALL Play Updates

AmerisourceBergen Corp. - ABC - close: 102.89 change: +1.01

Stop Loss: 99.85
Target(s): To Be Determined
Current Option Gain/Loss: -17.7%
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:
12/21/15: The rebound in ABC continued on Monday with shares adding +0.99%. The stock is once again challenging short-term resistance near $103.00. I would consider new bullish positions on a rally past $103.50.

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

12/16/15 new stop @ 99.85
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


Becton, Dickinson and Company - BDX - close: 153.59 change: +0.47

Stop Loss: 150.85
Target(s): To Be Determined
Current Option Gain/Loss: -32.3%
Average Daily Volume = 1.0 million
Entry on December 17 at $156.35
Listed on December 16, 2015
Time Frame: Exit PRIOR to earnings in February
New Positions: see below

Comments:
12/21/15: BDX was underperforming the market today. Shares slipped toward their 20-dma before finally starting to bounce this afternoon. The stock ended with a +0.3% gain versus the +0.77% rally in the S&P 500.

No new positions at this time.

Trade Description: December 16, 2015:
The stock market's big bounce this week has lifted the S&P 500 index back into positive territory for the year (currently up +0.7%). Healthcare stocks have outperformed with the XLV healthcare ETF up +6% year to date. BDX has doubled that with a +12% gain this year.

BDX is part of the healthcare sector. They are in the medical instruments and supply industry. According to the company, "BD is a leading medical technology company that partners with customers and stakeholders to address many of the world's most pressing and evolving health needs. Our innovative solutions are focused on improving medication management and patient safety; supporting infection prevention practices; equipping surgical and interventional procedures; improving drug delivery; aiding anesthesiology and respiratory care; advancing cellular research and applications; enhancing the diagnosis of infectious diseases and cancers; and supporting the management of diabetes. We are more than 45,000 associates in 50 countries who strive to fulfill our purpose of 'Helping all people live healthy lives' by advancing the quality, accessibility, safety and affordability of healthcare around the world. In 2015, BD welcomed CareFusion and its products into the BD family of solutions."

Their acquisition of CareFusion was a big deal. According to JP Morgan, they believe that BDX's purchase of CareFusion should transform the company into one that will "comfortably hit double-digit EPS growth over the next three to four years." The last couple of quarterly earnings report are definitely seeing the impact of the acquisition.

BDX's Q3 report, announced in early August, saw the company beat EPS estimates. Revenues were up +44.6% from a year ago. They raised 2015 guidance above Wall Street estimates into the $7.08-7.12 range. BDX also guided revenue growth in the +21-21.5% range.

The strong results continued in their fourth quarter. BDX announced its Q4 on November 4th. Analysts were looking for a profit of $1.90 a share on revenues of $3.03 billion. BDX beat both estimates. Earnings were $1.94 a share. Revenues were up +38.9% to $3.06 billion. Management guided for 2016 with earnings estimates in the $8.37-8.44 a share range. That's about +18% earnings growth over 2015. They expect revenues to grow +23-23.5% for the year.

The stock soared on its earnings report. BDX then spent the next few weeks consolidating gains. Now it looks like the bullish trend has resumed. The point & figure chart is very bullish and forecasting a long-term target at $209.00. Shares have been building on a bullish pattern of higher lows. Today's rally pushed BDX above resistance at $155.00. We see the breakout as an entry point. Tonight we are suggesting a trigger to buy calls at $156.35. Plan on exiting prior to earnings in February.

- Suggested Positions -

Long MAR $160 CALL (BDX160318C160) entry $3.84

12/17/15 triggered @ $156.35
Option Format: symbol-year-month-day-call-strike


Clovis Oncology - CLVS - close: 33.45 change: +0.65

Stop Loss: 30.75
Target(s): To Be Determined
Current Option Gain/Loss: -32.8%
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:
12/21/15: Biotech stocks barely eked out a gain today. Fortunately that didn't stop CLVS, which rallied +1.98% on the session. I would be tempted to buy calls again on a rally above $34.00 but keep in mind that the $36.00 level remains overhead resistance (for now). Also keep in mind that January options expire soon. You may want to use Aprils.

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


Charles River Labs. Intl. - CRL - close: 78.65 change: +0.83

Stop Loss: 77.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 426 thousand
Entry on December -- at $---.--
Listed on December 17, 2015
Time Frame: Exit PRIOR to earnings in February
New Positions: Yes, see below

Comments:
12/21/15: CRL dipped to short-term technical support at its 10-dma and bounced. The stock managed a +1.0% gain by the close. More aggressive traders may want to buy calls on this rebound. Officially we are waiting for a breakout to new highs with a trigger at $80.40.

Trade Description: December 17, 2015:
Non-insurance healthcare stocks have been showing relative strength. CRL is up nearly +33% from its early October low. It's also up +24.7% for the year when the S&P 500 is now down -0.8% for 2015.

According to the company, "Charles River provides essential products and services to help pharmaceutical and biotechnology companies, government agencies and leading academic institutions around the globe accelerate their research and drug development efforts. Our dedicated employees are focused on providing clients with exactly what they need to improve and expedite the discovery, early-stage development and safe manufacture of new therapies for the patients who need them."

The earnings picture has been improving. CRL reported Q2 results on July 30th. They missed estimates by a penny but management raised their 2015 guidance above Wall Street estimates.

Their performance improved in the third quarter. CRL announced their Q3 results on November 4th. Analysts were expecting $0.94 a share on revenues of $340 million. CRL beat on both counts. Earnings were $1.03 a share, a +16% improvement from a year ago. Revenues were up +6.7% to $349.5 million. If you back out negative foreign currency headwinds then CRL's Q3 revenues were up +12.2%. Management raised their full-year guidance above analysts' estimates again.

You can see on the daily chart how shares of CRL rallied on its Q3 report and optimistic outlook. Since then investors have been buying the dips near support. This week the stock has broken out to new eight-month highs. Shares are flirting with a bullish breakout past round-number resistance at $80.00. Tonight we are suggesting a trigger to buy calls at $80.40 with an initial stop loss at $77.75. More nimble traders may want to wait for a possible dip and buy calls in the $78.00-78.50 region instead. Officially our entry trigger is $80.40.

Trigger @ $80.40

- Suggested Positions -

Buy the FEB $85 CALL (CRL160219C85)

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


Dr Pepper Snapple Group - DPS - close: 92.18 change: +0.54

Stop Loss: 89.85
Target(s): To Be Determined
Current Option Gain/Loss: -43.0%
Average Daily Volume = 1.2 million
Entry on December 16 at $94.05
Listed on December 15, 2015
Time Frame: Exit PRIOR to earnings in February
New Positions: see below

Comments:
12/21/15: DPS slipped to its 20-dma before rebounding. The stock looks poised to rally tomorrow morning. I would consider buying calls again on a rally above $92.65.

Trade Description: December 15, 2015:
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.

- Suggested Positions -

Long FEB $95 CALL (DPS160219C95) entry $2.98

12/16/15 triggered @ $94.05
Option Format: symbol-year-month-day-call-strike


Netflix, Inc. - NFLX - close: 116.63 change: -1.39

Stop Loss: 114.45
Target(s): To Be Determined
Current Option Gain/Loss: -60.3%
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:
12/21/15: It was a disappointing day for NFLX bulls. The stock underperformed the broader market with a -1.1% decline. Shares came close to testing recent support at the $115.00 level. Technically a bounce from here could be a new entry point but I would want to see NFLX trade above $118.25 before considering new positions.

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


Ryanair Holdings - RYAAY - close: 86.10 change: +1.35

Stop Loss: 79.90
Target(s): To Be Determined
Current Option Gain/Loss: -16.1%
Average Daily Volume = 406 thousand
Entry on December 21 at $85.77
Listed on December 19, 2015
Time Frame: Exit PRIOR to earnings in February
New Positions: see below

Comments:
12/21/15: Our new bullish play on RYAAY is off to a good start. The plan was to buy calls at $85.65 but our trade opened on the gap higher at $85.77. RYAAY surged toward $87.00 before paring its gains on the session.

More conservative investors may want to start raising their stop loss.

Trade Description: December 19, 2015:
Airline stocks as a group have had a rough year in 2015. The XAL airline index is down -15% year to date and looks poised to accelerate lower. RYAAY is an exception. The stock is up +16% in 2015 and is about to break out to new highs.

The company benefits from several factors. RYAAY is based in Ireland and right now Ireland is the strongest growing economy in the Eurozone. Meanwhile the European Central Bank has embarked on a huge quantitative easing program that should boost the broader economy. If that wasn't enough we have crude oil down to six-year lows and likely headed lower. Jet fuel is a major expense for the airlines to the drop in oil prices is a huge tailwind for profits.

If you're not familiar with RYAAY they are in the services sector. According to the company, "Ryanair is Europe's favorite airline, operating more than 1,800 daily flights from 76 bases, connecting 200 destinations in 31 countries on a fleet of over 300 Boeing 737 aircraft. Ryanair has orders for a further 380 new Boeing 737 aircraft, which will enable Ryanair to lower fares and grow traffic from 105 million this year to 180 million p.a. in FY24. Ryanair has a team of more than 10,000 highly skilled aviation professionals delivering Europe's No.1 on-time performance, and has an industry leading 30-year safety record."

Back in September RYAAY raised their full-year earnings guidance by +25%. The stock reacted with a surge to new highs. The company's October traffic grew +15% from a year ago with their load factor, the percentage of seats sold, up +5% to 94%. The strong trend continued in November with RYAAY announcing traffic was up +21% from a year ago. Again their load factor was up 5% to 93%.

Earlier this month the International Air Transport Association (IATA) issued a press release on industry profits for 2015 and 2016. The IATA raised their estimate on airline industry profits in 2015 from $29.3 billion to $33 billion with a net profit margin of 4.6%. They expect that to improve in 2016 with a forecast for industry profits of $36.3 billion on a net profit margin of 5.1%. Most of this is driven by rising passenger travel in spite of the recent terrorist attack in Paris.

Technically shares of RYAAY have been outperforming both its rivals in the airline industry and the broader market. The stock is up three weeks in a row. It's also poised to breakout from its $76.00-85.00 trading range. A rally above $86.00 will produce a new buy signal on the point & figure chart. Tonight we are suggesting a trigger to buy calls at $85.65.

- Suggested Positions -

Long MAR $90 CALL (RYAAY160318C90) entry $3.10

12/21/15 triggered on gap open at $85.77, trigger was $85.65
Option Format: symbol-year-month-day-call-strike




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