Option Investor
Newsletter

Daily Newsletter, Wednesday, 12/30/2015

Table of Contents

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

Market Wrap

Some Profit Taking

by Keene Little

Click here to email Keene Little
Heading into the final two trading days of the week/month/year had some traders taking money off the table before we enter the new year. The past two years were not kind to bulls in January and that could be causing some concerns about this coming January.

Today's Market Stats

Profit taking hit the market early today and it could be the start of a deeper pullback/selloff if it follows the pattern in December 2014. But the last day of December in front of another holiday weekend leaves both sides guessing what might happen in a low-volume environment.

As expected, today's trading was another low-volume day, about the same as yesterday, but the internals were a little more bearish than yesterday's bullish internals. This could be a clue about what to expect on Thursday, the last trading day of the week/month/year. In 2014 the stock market peaked on December 29th (Friday, December 26th for the DOW) and started a strong selloff in the final two days of the month

The strong selling at the start of 2015 continued for the first three trading days of January and SPX dropped about 101 points from the December 29th high before starting a whippy period for the rest of the month. In 2013 the market peaked on December 31st and then got whippy for the first half of January before selling off strong into the end of the month where SPX dropped about 110 points. Fear of something similar happening could be prompting some profit taking before the end of this year.

If we see more selling tomorrow I suspect early next week could see additional selling so take your clues from tomorrow's price action and hedge/protect your positions accordingly.

The only economic report of meaning today was the Pending Home sales for November, which declined -0.9%. That was a disappointment since the market expected +0.5% following +0.4% in October (which was revised higher from +0.2%). The month of November did not experience much in the way of bad weather so the decline in home sales is not a good sign when combined with the many other economic reports showing a slowing economy. Then when you combine the slowing corporate earnings and a Fed that is trying to tighten monetary policy you have an environment that is not supportive of a stock market rally.

Moving into January could be a period when fund managers decide they'd rather be in cash than in riskier asset classes. We've seen a strong decline in the junk bond market and that's expected to only get worse, especially from those companies that borrowed heavily but are now suffering from an earnings decline and do not have the ability to service their debt. This is happening to more and more companies but the energy field is the poster child for this problem.

And then we throw in all the debt for automobiles, much of which is has been taken on by "under" qualified individuals (does fogging a mirror ring any bells?) and student loan debt, we have trillions of borrowed money that is in jeopardy of never being paid back. Higher numbers of bankruptcies and debt forgiveness are expected and it's all part of what will become the next deflationary wave. Holding the market up into the end of the year (we'll see if SPX can hold above 2058.90 following today's low near 2062) could be followed by anxious fund managers quickly unloading inventory as the signs of economic weakness continue to grow and that's what makes this January again especially vulnerable to a strong selloff.

We can of course only speculate what the market will do. It has held up in the face of deteriorating fundamentals for a long time and it could continue to do so. You know the saying -- the market can remain irrational far longer than you can remain solvent fighting the market. So we'll stick with the charts and look for guidance from the price action.

There is the potential for the market to hold up at least into April if it chops its way higher as depicted on the SPX weekly chart below. I say choppy because of the way it has started and if it continues higher it will likely form a rising wedge (ending diagonal 5th wave) that would frustrate traders on both sides. The kinds of strong reversals we've been seeing would likely continue. This week's price action provides very few clues about what to expect. Price poked above the 50-week MA, near 2063, but closed on it today. Closing above 2058.90, to keep it in the green for the year, and above its 50-week MA would at least keep the bullish hopes alive as we head into January. But a decline below the December 14th low near 1993 would be a bearish warning sign that much strong selling could follow.

S&P 500, SPX, Weekly chart

Tuesday's rally brought SPX up to the top of a parallel down-channel for price action following the November high and today's selloff leaves it looking like a test of the top of the channel and a bearish kiss goodbye today. But it only pulled back to slightly below its 50-dma, near 2067, and slightly above its 200-dma near 2061. A rally above Tuesday's high at 2081.56 would point to at least a test of price-level S/R near 2090 and then perhaps its downtrend line from July-November, near 2106. But a drop below Monday's low at 2044 would be a bearish heads up and with the risk of a strong selloff in January I'd be looking to play the short side from there.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2090
- bearish below 1993

One pattern I've been monitoring is an a-b-c bounce pattern off the December 14th low. Two equal legs up points to 2088.94 and with today's 3-wave pullback there is the potential for another rally leg to follow. That's why a rally above yesterday's high would have me looking for 2090. But there is the potential for a very bearish pattern to now be followed by a strong selloff in the weeks ahead. The bearish wave count calls the setup here the start of 3rd waves at multiple degrees (a 3rd of a 3rd wave to start a larger 3rd wave in the decline from July). It's this potential that could drop SPX in a hurry down to the trend line along the lows from November 16 - December 14. That would mean down to about 1970 in the first week of January, which would be a decline of about 110 points from Tuesday's high. That in turn would match what happened into the January lows in 2013 and 2014. The bulls need to rally the market on Thursday otherwise we could be looking at a nasty week for the bulls next week.

S&P 500, SPX, 60-min chart

The DOW's pattern is very similar to SPX except it's a little weaker. It has not been able to break through its downtrend line from December 2-16, which it had poked above yesterday but closed on it. Today's little selloff fits as a bearish kiss goodbye against resistance. But, similar to SPX, it has only pulled back in a 3-wave pattern and is holding above its broken 20- and 200-dmas, now near 17531 and 17536, resp. It closed slightly below its 50-dma near 17618. Below Monday's low at 17437 would be more bearish and a strong selloff could follow as a 3rd of a 3rd wave down in its decline from November. From a bullish perspective, I see the potential for at least one more push higher to 17823, although not likely tomorrow. Of course never say never since it's possible the DOW could be rallied 220 points in a low-volume environment. In addition to that level being the 2014 closing price, it's also the location of the May-November downtrend line.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 17,850
- bearish below 17,437

Since the November high and low NDX has been chopping sideways within the November price range of roughly 4500 to 4740. The sideways consolidation following the rally off the August low can certainly be considered a bullish continuation pattern but it's also been a common topping pattern at important highs. I see the potential for price to chop its way a little higher into January and reach the price projection at 4820, which is where the 5th wave of the move up from August would equal 62% of its 1st wave. But following a failed back-test (so far) of its broken uptrend line from August-September it's currently a setup to get short.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4740
- bearish below 4513

The poor RUT will finish 2015 well into the red, currently down -4.6%. Compared to the NDX, currently up +9.8%, it's a little surprising the small caps haven't done better this year. The main culprits are the small energy-related stocks. Oil service stocks are down -12.6% while oil is down "only" -11.6%. December is supposed to be a strong month for the RUT, as can be seen on the chart below, which shows the typical price action during December. The RUT is the top (blue) line and it shows it's typically up about 3.25% for the month. This month it's down -4.0%. Not a good showing at all and in fact most indexes are finishing in the red for December. The utility index (a defensive sector) is in the green (+3.4%).

December pattern

The RUT had an impulsive decline from December 2nd into the December 14th low. That has been followed by a choppy bounce pattern which has it looking more like a correction to the decline, which in turn suggests another leg down once the bounce completes. I see the potential for another small bounce higher, perhaps up to 1164-1170, before turning back down but it's also quite possible the next leg down started today.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1170
- bearish below 1120

The bond market continues to act confused as the sideways chop continues. The TNX (10-year yield) chart below shows the bounce off the December 11th low has it back up testing its downtrend line from June 2007 - December 2013, which is the 4th time since the November 9th back-test. The more times resistance is tested the weaker it becomes and therefore there's a decent chance it will break this time, in which case I'd look for a rally (with additional selling in bonds) at least up to its broken uptrend line from July 2012 - May 2013, currently near 2.4%. It would be more bullish above that level. But the choppy price pattern suggests we are likely to see a continuation of the sideways consolidation into January/February before breaking down. Below 2.08% would be more bearish and below 2.0% would indicate the next leg down is underway. I continue to believe TNX will be below 1% before the bond bull market has completed.

10-year Yield, TNX, Daily chart

A slightly different perspective is offered by TLT, the 20+ year Treasury bond ETF. The June-August rally has been followed by a sideways consolidation and it's possible to call the pattern complete (a-b-c-d-e wave count off the August high). If so it will then be followed by another rally leg to at least match the June-August rally, which points to 133.71 for two equal legs up from June, or the 62% projection at 128.34 for what could be a larger sideways consolidation pattern. This bullish pattern calls for a rally in Treasuries from here so a bounce off its uptrend line from December 2013 - June 2015 would give traders a good setup to get long and then use the low for your stop.

20+ Year Treasury Bond ETF, TLT, Daily chart

The banking index, BKX, has been unable to break through its nest of 20-, 50- and 200-dmas, currently located between 74.00-74.50, and today's decline dropped it back below those moving averages. There's nothing really firm to indicate one direction vs. the other since it's chopping up and down inside a contracting price range since the December 4th high. At this point I'd say BKX needs to break above 76.10 to look more bullish and below 71.82 (the December 21st low) to look more bearish. I think the setup here is bearish but there's a lot the bears still need to do in order to confirm the setup.

KBW Bank index, BKX, Daily chart

Since the December 14th and 18th lows for the TRAN I've been thinking we'll get a bigger bounce correction before heading lower again. That remains a possibility and it's what I show on its chart below. But the failure to get back above price-level S/R near 7650, as well as its 20-dma, currently near 7639, is bearish. A correction to the leg down from November 20th might go sideways instead of creating a higher bounce before heading lower again. As long as it remains below 7650 it certainly remains bearish.

Transportation Index, TRAN, Daily chart

I normally show a weekly chart of the U.S. dollar to keep the sideways chop since March in perspective. I've been showing an expectation for the sideways chop to continue into the first half of 2016 and that hasn't changed. Trying to figure out how the choppy pattern might play out is the difficult task but for the moment we have a good setup for at least another leg down for a 3-wave pullback from December 3rd. Two equal legs down points to 95.95 and that projection crosses its uptrend line from August-October mid-January. A drop below 95.95 would be more immediately bearish but likely only for a decline to the bottom of this year's trading range (93-94) before heading back up.

U.S. Dollar contract, DX, Daily chart

Similar to what I said about the TRAN above, I've been expecting a higher bounce correction for gold before it heads lower. But the more it consolidates near its December 3rd low the more it's going to look like a sideways correction instead of a higher bounce correction. I see the potential for a bounce up to about 1090 and then 1116-1118 if it climb above 1090 but that bounce needs to get started sooner rather than later. Regardless of the bounce/correction, the larger pattern continues to suggest lower prices before we'll see a good opportunity to start loading up on the shiny metal (silver too).

Gold continuous contract, GC, Daily chart

Crude inventories bumped back up this past week, +2.629M barrels, which follows a drop of -5.877M barrels the prior week. This morning's report might have had something to do with the pullback in oil today but at the moment it's hard to determine whether oil will head lower from here or give us at least a stronger bounce. As shown on its chart below, I'm looking for either a rally or a choppy bounce/consolidation before heading lower again. Above 43.50 would point to a higher bounce/rally but until that happens it remains possible we'll see a choppy consolidation/decline into a tradeable low around February.

Oil continuous contract, CL, Daily chart

Tomorrow's economic reports include the unemployment claims and Chicago PMI. With the steady drumbeat of slowing economic numbers we'll see if the Chicago PMI disappoints or comes in a little stronger than November, which is what the market is expecting.

Economic reports

Conclusion

Today's selling might not have been anything more than a little profit taking and for the last day of the week/month/year we could see some buying, maybe even strong buying, in a low-volume environment if there's going to be an effort to prop the market up as high as possible for and end-of-year finish. That can only be speculated here, especially since the weakness in the last two trading days is what we saw last year. That weakness turned into strong selling the first three trading days of January. This and the selling that occurred in January 2014 could have many fund managers looking to get out of the way earlier rather than later.

It's not hard for me to see some additional upside potential for the market, even if it's just for a small choppy move higher into next week. But the bearish interpretation of the price pattern is especially bearish, calling for multiple degrees of 3rd waves to the downside. This bearish pattern calls for a sharp and strong decline in the coming weeks and like January 2014 and January 2015 we could see SPX shed more than 100 points in a hurry into January 2016. You'll want to play the short side if that happens. Follow the key levels, up and down, on the charts and play the direction of the break. In the meantime be careful about the potential for more whipsaws and reversals of reversals.

I'd like to wish everyone a very Happy New Year and I hope 2016 will be better than 2015. As traders we like to see big moves and a trending market is a joy to trade. That's not what we had in 2015 as the market simply traded sideways in a choppy consolidation. It's a very difficult time to trade and I know many traders who were chopped to pieces. It's small comfort to know you're not alone if you were one of them but know this past year has been one of the more difficult to trade, especially if you're a trend follower. If we've entered the next (and last) bear market leg down it's also not going to be easy to trade but you will have an opportunity to make significant money on the short side if played correctly. And hopefully that's what we at OIN can help you do. If you're still sitting on the fence about re-upping, be sure to sign back up with us and let us help with some trading ideas and more learning. The subscription is a very small price to pay for the kind of learning that should help you tremendously. And again, thank you all for your subscription that enables us to do what we love to do (teach a man to fish...).

 

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Good luck and I'll be back with you next Wednesday. I'll also be taking over from Leigh Stevens for the weekend Index Wrap, starting this coming weekend. I hope to "see" some of you there.

Keene H. Little, CMT

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


New Option Plays

All Eyes on 2,059

by James Brown

Click here to email James Brown

Editor's Note:

Tomorrow could be a nail biting session for those hoping to see the market post a gain in 2015. The S&P 500 closed at 2,063.36 today. That is only about four points above breakeven for the year. At the moment the S&P 500 is up less than +0.2% for 2015. The plunge this afternoon doesn't bode well for tomorrow morning.

Normally the seasonal Santa Claus rally from December 24th through the first couple of trading days of January delivers a +1.4% gain in the S&P 500. Our Santa rally may have come early. The S&P 500 rallied +3.6% from its December 18th low of 2,005 into yesterday's close at 2,078.

Technically today's session has generated an "inside day" for the S&P 500. All of today's trading too place inside yesterday's trading range. That normally suggest investor indecision.

Tomorrow is the last trading day of the year and volume will likely be very low. The month of December has seen some volatile moves in the market and the next few days could follow suit.

No new trades tonight.

There will be no newsletter tomorrow night (New Year's Eve). We will be back this weekend with our normal schedule.

Keep your eyes on the 2,059 mark. The S&P 500 needs to close above this level to eke out a "gain" for the year. At this point calling it a gain is being too generous.

Have a safe and happy New Year!




In Play Updates and Reviews

Marching To Oil's Drumbeat

by James Brown

Click here to email James Brown

Editor's Note:

It has been a volatile week for crude oil prices. Today oil reversed lower and it weighed heavily on the stock market. The market's weakness accelerated this afternoon.


Current Portfolio:


CALL Play Updates

AmerisourceBergen Corp. - ABC - close: 105.02 change: +0.25

Stop Loss: 102.40
Target(s): To Be Determined
Current Option Gain/Loss: + 0.0%
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:
12/30/15: ABC managed to trade above technical resistance at its simple 200-dma before giving back its gains. The market's sharp decline this afternoon erased most of its gains for the session.

No new positions at this time.

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

12/29/15 new stop @ 102.40
12/26/15 new stop @ 101.20
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


Avago Technologies - AVGO - close: 147.37 change: -0.57

Stop Loss: 143.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 3.6 million
Entry on December -- at $---.--
Listed on December 29, 2015
Time Frame: Exit PRIOR to February option expiration
New Positions: Yes, see below

Comments:
12/30/15: It was a quiet day for shares of AVGO, which settled with a -0.3% decline. Nimble traders may want to consider buying calls on a dip (or a bounce) near the $145.00 level where the 10-dma and 20-dma are converging. This newsletter is suggesting investors wait for a breakout and use a trigger at $150.25.

Trade Description: December 29, 2015:
AVGO is probably best known for being a chip supplier to Apple Inc. (AAPL). Shares of AAPL have struggled the last half of 2015 on worries about slowing iPhone sales. This worry has not impacted shares of AVGO.

AVGO is in the technology sector. They're part of the semiconductor industry. According to the company, "Avago Technologies Limited is a leading designer, developer and global supplier of a broad range of analog, digital, mixed signal and optoelectronics components and subsystems with a focus in III-V compound and CMOS based semiconductor design and processing. Avago's extensive product portfolio serves four primary target markets: wireless communications, enterprise storage, wired infrastructure, and industrial & other."

We can't mention AVGO without mentioning their $37 billion acquisition of Broadcom (BRCM). Here's a description of BRCM, "Broadcom Corporation, a FORTUNE 500® company, is a global leader and innovator in semiconductor solutions for wired and wireless communications. Broadcom products seamlessly deliver voice, video, data and multimedia connectivity in the home, office and mobile environments. With one of the industry's broadest portfolio of state-of-the-art system-on-a-chip solutions, Broadcom is changing the world by Connecting everything®."

This acquisition of BRCM was announced in May 2015. The combined company was initially valued at $77 billion. Together they will have annual sales of $15 billion with $6-7 billion in free cash flow. The merger is expected to close on February 1, 2016.

Without BRCM, AVGO has been delivering impressive earnings and revenue growth. Last year AVGO saw earnings surge from $1.16 a share to $4.90. This year Wall Street expects AVGO's earnings to hit $9.68 a share. Revenue growth over the last five years has averaged more than +23% a year.

AVGO's most recent earnings report was December 2nd. The company announced their Q4 results with earnings rising +26% from a year ago to $2.51 a share. That beat estimates by 13 cents. Revenues were up +15% to $1.85 billion. Gross margins improved from 51% in Q3 to 54% in Q4. The stock surged toward resistance near $150 following this better than expected earnings report.

Several days ago RBC Capital Markets upgraded AVGO to one of their top picks. RBC analyst Amit Daryanani shared his opinion on the company, saying, "Our bullish bias is predicated on our belief that AVGO will expand EPS from $9.24 in CY15E to [more than] $16.00 by CY18E driven by multiple levers - BRCM integration, asset divestures, RF ramp-up, cost containment and potential deleveraging ... we estimate [less than 30%] of future EPS growth is predicated on organic revenue dynamics and 70%+ is driven by AVGO's ability to curtail costs, optimize the portfolio, and further deleveraging."

Daryanani raised their AVGO price target from $165 to $170. Currently the point & figure chart is very bullish and forecasting a long-term target of $213. Technically shares of AVGO appear to be consolidating sideways beneath major resistance at the $150.00 level. If the stock breaks out we want to be ready. Tonight we are suggesting a trigger to buy calls at $150.25.

Trigger @ $150.25

- Suggested Positions -

Buy the FEB $155 CALL (AVGO160219C155)

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


Becton, Dickinson and Company - BDX - close: 155.43 change: -1.10

Stop Loss: 152.25
Target(s): To Be Determined
Current Option Gain/Loss: -29.7%
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:
12/30/15: The S&P 500 index lost -0.7% on the session. BDX followed suit, down -0.7%. The stock fell toward short-term support near $155.00 and its 10-dma.

More conservative traders may want to raise their stop loss again. 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

12/26/15 new stop @ 152.25
12/17/15 triggered @ $156.35
Option Format: symbol-year-month-day-call-strike


Clovis Oncology - CLVS - close: 34.40 change: -0.62

Stop Loss: 32.45
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:
12/30/15: CLVS continues to be more volatile than its peers in the biotech space. Shares actually broke out to new multi-week highs with a surge past resistance at $36.00 this morning. Unfortunately the rally didn't last and CLVS quickly reversed lower. Shares ended the session down -1.7%. I'm concerned this is another failed rally near resistance in the $36.00 region.

No new positions at this time.

Trade Description: November 28, 2015:
After a -70% plunge all the bad news might be priced in for this biotech stock.

CLVS is in the healthcare sector. According to the company, "Clovis Oncology is a biopharmaceutical company focused on acquiring, developing and commercializing cancer treatments in the United States, Europe and other international markets. Our product development programs target specific subsets of cancer, and we seek to simultaneously develop, with partners, companion diagnostics that direct our product candidates to the patients most likely to benefit from their use. We believe this approach to personalized medicine - to deliver the right drug to the right patient at the right time - represents the future of cancer therapy."

The company has three product candidates in their pipeline. They are rociletinib, rucaparib, and lucitanib. Right now the market is reacting to news on its rociletinib clinical trials, where the drug is being tested on non-small-cell lung cancer.

Several days ago the company issued an update on their Rociletinib NDA filing. CLVS held their regularly scheduled mid-cycle communication meeting with the U.S. Food and Drug Administration (FDA). The current data on the Rociletinib clinical trials was not good enough. The FDA is asking for more data to prove the treatment's efficacy. This will likely push back the time frame on any approval. Investors were expecting a potential approval in the March-April 2016 time frame.

The delay in Rociletinib approval is a serious setback. Rival biotech firm AstraZeneca just got FDA approval for a competing drug, Tagrisso. By the time Rociletinib is approved (if it's approved), it will face serious competition from an already established treatment.

CLVS is a perfect example of why biotech stocks can be high-risk trades. On November 13, 2015 the stock closed at $99.43. The next trading day, Nov. 16th, shares gapped down at $29.27 and closed near $30. The stock traded down to $24.50 on November 23rd and started to reverse higher. CLVS' stock is now up three days in a row.

The current rally could be a combination of short covering and investors bargain hunting. It has been a full two weeks since the sell-off. If investors were going to sell they probably did so already. We think this rebound has a lot further to go but make no mistake CLVS is still a higher-risk trade. Tonight we are suggesting a trigger to buy calls at $32.55.

- Suggested Positions -

Long JAN $35 CALL (CLVS160115C35) entry $2.90

12/29/15 new stop @ 32.45
12/26/15 new stop @ 31.95
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: 80.54 change: +0.04

Stop Loss: 77.75
Target(s): To Be Determined
Current Option Gain/Loss: - 8.1%
Average Daily Volume = 426 thousand
Entry on December 24 at $80.40
Listed on December 17, 2015
Time Frame: Exit PRIOR to earnings in February
New Positions: see below

Comments:
12/30/15: CRL rallied to new multi-month highs midday. Gains faded by the closing bell and shares settled almost unchanged on the session. CRL should find short-term support at its rising 10-dma near $79.50. If this level fails then look for additional support near $78.35.

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.

- Suggested Positions -

Long FEB $85 CALL (CRL160219C85) entry $1.85

12/24/15 triggered @ $80.40
Option Format: symbol-year-month-day-call-strike


Dr Pepper Snapple Group - DPS - close: 94.65 change: -0.34

Stop Loss: 93.25
Target(s): To Be Determined
Current Option Gain/Loss: -12.8%
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:
12/30/15: DPS held up reasonably well today. Shares gave back about half of yesterday's rally. Broken resistance in the $94.00 area might offer some short-term support if the market cooperates.

No new positions at this time.

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

12/29/15 new stop @ 93.25
12/26/15 new stop @ 91.35
12/16/15 triggered @ $94.05
Option Format: symbol-year-month-day-call-strike


Facebook, Inc. - FB - close: 106.22 change: -1.04

Stop Loss: 103.40
Target(s): To Be Determined
Current Option Gain/Loss: - 6.3%
Average Daily Volume = 28 million
Entry on December 29 at $106.42
Listed on December 28, 2015
Time Frame: Exit PRIOR to earnings in late January
New Positions: see below

Comments:
12/30/15: Hmm... yesterday FB displayed relative strength. Today shares showed some relative weakness with a -0.96% decline. The S&P 500 lost -0.7% while the NASDAQ composite slipped -0.8%. The $106.00 level should be short-term support for FB but I suspect if the market continues to sink that we could see FB retest technical support at its 50-dma currently near $105.00.

I would be tempted to buy calls on a dip near $105.00. More conservative traders may want to wait for a breakout past $108 instead.

Trade Description: December 28, 2015:
It's time to get social.

Facebook needs no introduction. It is the largest social media platform on the planet. Last quarter the company surpassed 1.5 billion monthly active users. They also set a new milestone this year with one billion people logged into Facebook in a single day.

The company continues to grow. In addition to their Facebook social media powerhouse they also own Facebook Messenger, WhatsApp, and Instagram. Their WhatsApp product is the largest messaging service on the planet with over 900 million monthly active users. Meanwhile FB's photo-sharing Instagram property has more than 300 million active users. The company has been ramping up their advertising efforts to monetize Instagram. FYI: FB also owns Occulus Rift, the virtual reality company, but it's probably a few more years before VR goes mainstream. They do expect a big launch for Occulus in 2016 but it will not move the needle for FB's revenues any time soon.

The company's most recent earnings report was November 4th, 2015. FB announced its Q3 earnings of $0.57 a share, which was five cents above estimates. Revenues soared +40% to $4.5 billion, also better than expected. Their daily active users (DAUs) rose +17% from a year ago to 1.01 billion. Their mobile DAUs rose +27% to 894 million people. Monthly active users (MAU) hit another record at 1.55 billion people, up +14% from a year ago.

Following FB's Q3 results there was a parade of analysts reiterating their buy ratings on the stock. Several raised their price targets (a few of the new price targets are $120, $125, $135, and $140). The stock popped to a new all-time high and tagged $110.65 on this report. Since then shares have been slowly sinking in what looks like a long, sideways consolidation.

Here's the good news for bullish investors. Recent action suggest FB is poised to breakout from this multi-week consolidation. The last few days have seen traders buying the dips near its rising 50-dma. Tonight we are suggesting a slightly more aggressive entry point. The plan is to buy calls if FB trades at $106.25 (or higher). More conservative investors may want to wait for a breakout past short-term resistance at $108.00 instead. We will plan to exit prior to FB's next earnings report in late January.

- Suggested Positions -

Long FEB $110 CALL (FB160219C110) entry $3.20

12/29/15 triggered on gap open at $106.42, suggested entry was $106.25
Option Format: symbol-year-month-day-call-strike


Northrop Grumman - NOC - close: 190.08 change: -1.40

Stop Loss: 186.85
Target(s): To Be Determined
Current Option Gain/Loss: -18.6%
Average Daily Volume = 1.2 million
Entry on December 29 at $191.25
Listed on December 22, 2015
Time Frame: Exit PRIOR to earnings in late January
New Positions: see below

Comments:
12/30/15: NOC gave back nearly all of yesterday's rally. The stock dropped back to what should be round-number support at $190.00. I would use a bounce from current levels as another bullish entry point. However, more conservative traders may want to wait for another rally above $191.25 before initiating positions.

Trade Description: December 22, 2015:
A few years ago, back in 2011, politicians in Washington created massive defense spending and entitlement cuts in their sequestration budget cut threats. It was supposed to be a goad to provoke their peers and rivals to getting a budget deal done. It didn't work. The sequestration cuts were put into place in 2013 but instead of crushing the defense industry stocks the group has thrived.

NOC is in the industrial goods sector. According to the company, "Northrop Grumman is a leading global security company providing innovative systems, products and solutions in unmanned systems, cyber, C4ISR, and logistics and modernization to government and commercial customers worldwide." They focus on four business sectors: aerospace systems, electronic systems, information systems, and technical services.

One reason the major defense names have done so well was their focus on gaining new clients overseas. If the U.S. was going to cut back on spending (more like cut back on the pace of spending) then military contractors focused on generating new business with allies overseas and it worked.

NOC has beaten Wall Street's earnings estimates the last four quarters in a row. They've delivered better than expected revenue numbers three of the last four quarters. Plus, NOC management has raised guidance three of the last four quarters. As of their most recent earnings report on October 28th, NOC's backlog was about $36 billion.

NOC has been in a heated battle with rivals Boeing (BA) and Lockheed Martin (LMT) over one of the biggest defense contracts of all time. That is the Air Force's new Long Range Strike Bomber contract. Aerospace giants Boeing and Lockheed had teamed up together to win this deal. Some were calling it a David-versus-Goliath story. NOC was the underdog and surprisingly the U.S. government gave the contract, worth a potential $80 billion, to NOC in late October this year. BA and LMT have since chosen to protest this decision so the ultimate decision has yet to be finalized but it's a bullish development for NOC investors.

The LRSB contract has two parts. The engineering and manufacturing and development portion of the contract is worth more than $21 billion. Once it's finally developed the planes are supposed to cost the government $564 million apiece. Altogether the defense department could spend up to $80 billion on the program.

Another bullish tailwind for defense contractors like NOC is the ongoing global battle with radical Islamic terrorists and ISIS. The U.S. will likely boost its defense spending as it turns up the heat on this threat. Meanwhile after the terrorist attacks in Paris, analysts believe that NATO could generate an additional $100 billion in defense spending as they beef up their military might.

JPMorgan recently upgraded shares of NOC from "neutral" to "overweight" and gave the stock a $212 price target. They like NOC and believe it is a place of "safety and steadiness" in a volatile market.

The stock has shown significant relative strength this year with a +28% gain in 2015. The last few weeks have seen NOC consolidate sideways beneath resistance at $190 but with a bullish trend of higher lows as investors keep buying the dips. The stock looks ready to break out. Tonight we are suggesting a trigger to buy calls at $191.25.

- Suggested Positions -

Long FEB $195 CALL (NOC160219C195) entry $4.30

12/29/15: triggered @ $191.25
Option Format: symbol-year-month-day-call-strike


Royal Caribbean Cruises - RCL - close: 102.73 change: +0.10

Stop Loss: 95.85
Target(s): To Be Determined
Current Option Gain/Loss: +12.2%
Average Daily Volume = 2.0 million
Entry on December 29 at $100.85
Listed on December 26, 2015
Time Frame: Exit PRIOR to earnings in late January
New Positions: see below

Comments:
12/30/15: RCL traded to new highs before fading back toward unchanged on the session. If this market dip continues we could see RCL drop back toward the $100.00-100.50 zone. I'd use a bounce near $100 as another entry point.

Trade Description: December 26, 2015:
2015 has been a tough year for fund managers. The market's recent bounce has lifted the S&P 500 to a +0.1% gain for the year. One group that is outperforming the big cap index is the consumer discretionary stocks. The XLY consumer discretionary ETF is up +8.7% year to date. Helping lead the charge is RCL, which is up more than +20% thus far in 2015.

RCL is in the services sector. According to the company, "Royal Caribbean Cruises Ltd. is a global cruise vacation company that owns Royal Caribbean International, Celebrity Cruises, Azamara Club Cruises, Pullmantur and CDF Croisieres de France, as well as TUI Cruises through a 50 percent joint venture. Together, these six brands operate a combined total of 44 ships with an additional eight under construction contracts, and two under conditional agreements. They operate diverse itineraries around the world that call on approximately 480 destinations on all seven continents."

A few weeks ago Barclays just upped their outlook on the cruise liners and believes the group is seeing improved strength in pricing. Meanwhile RCL has been cashing in on the growing trend of Chinese tourism. The recent change in ties between the U.S. and Cuba also represents a new opportunity for the cruise lines.

Crude oil's drop to multi-year lows is another tail wind for RCL. Fuel is a big expense for these massive cruise ships with many burning through 140-150 tons of fuel per day. Fortunately, oil (and fuel) is expected to remain relatively low throughout 2016.

Technically RCL has been able to build on its longer-term trend of higher lows and higher highs. The point & figure chart is bullish and forecasting at $118 target. Last week's widespread market rally lifted shares of RCL toward major resistance at $100. A breakout here could spark the next big leg higher. Tonight we are suggesting a trigger to buy calls at $100.85.

- Suggested Positions -

Long MAR $105 CALL (RCL160318C105) entry $4.10

12/29/15 triggered @ $100.85
Option Format: symbol-year-month-day-call-strike


Ryanair Holdings - RYAAY - close: 86.96 change: -0.68

Stop Loss: 84.45
Target(s): To Be Determined
Current Option Gain/Loss: -25.8%
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:
12/30/15: RYAAY only lost -0.77%, which is in-line with the S&P 500's -0.7% decline. Today's loss does snap a seven-day winning streak for the stock. Unfortunately today's decline has also produced a bearish engulfing candlestick reversal pattern. Readers may want to raise their stop loss.

No new positions at this time.

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

12/26/15 new stop @ 84.45
12/21/15 triggered on gap open at $85.77, trigger was $85.65
Option Format: symbol-year-month-day-call-strike


Spectrum Brands Holdings - SPB - close: 102.20 change: -0.57

Stop Loss: 99.85
Target(s): To Be Determined
Current Option Gain/Loss: -23.5%
Average Daily Volume = 257 thousand
Entry on December 22 at $100.57
Listed on December 21, 2015
Time Frame: Exit PRIOR to earnings in February
New Positions: see below

Comments:
12/30/15: The action in SPB was bearish today. Shares erased yesterday's rally. Furthermore today's move looks like a short-term bearish reversal pattern. I would expect SPB to drop toward its 10-dma near $100.85 soon. The $100.00 mark should offer additional support.

No new positions at this time.

Trade Description: December 21, 2015:
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.

- Suggested Positions -

Long APR $105 CALL (SPB160415C105) entry $3.40

12/26/15 new stop @ 99.85
Option Format: symbol-year-month-day-call-strike




PUT Play Updates

Currently we do not have any active put trades.