Option Investor
Newsletter

Daily Newsletter, Sunday, 12/7/2014

Table of Contents

  1. Leaps Trader Commentary
  2. Portfolio
  3. New Plays
  4. Play Updates
  5. Watch

Leaps Trader Commentary

Seven Weeks In A Row

by James Brown

Click here to email James Brown

The U.S. market stumbled on Monday as investors reacted to disappointing Black Friday numbers. Consumer traffic and spending did not meet expectations but that's likely because so many stores started their Black Friday deals earlier. Plus more and more consumers are shopping from home or their mobile phone instead of standing in line out in the cold for those door buster deals. Traders bought Monday's dip and the S&P 500 and the Dow Jones Industrial Average both posted their seventh weekly gain in a row and tagged new all-time highs.

Crude oil continued to sink follow the prior week's plunge with oil prices losing another -1.1% and closing at levels not seen since 2009. Yet a lot of the oversold oil stocks bounced and the oil index gained +2.1%. The same can not be said for the more volatile oil service stocks as the OSX oil service index lost another -2.3%. The market did see strength in the financials with the banks up +2.6% and continued strength in the SOX semiconductor index, which added another +2.5% to close at multi-year highs.

The euro and the yen continued to sink and closed at new multi-year lows. This helped push the U.S. dollar to levels not seen since 2006. The U.S. ten-year bond yield ended the week at 2.3%.

Economic Data

We had a lot of economic data to digest. The ISM manufacturing index came in higher than expected at 58.7. The ISM services index rose from 57.1 to 59.3. Economists were only expecting a rise to 57.5. Numbers above 50.0 suggest growth. Factory orders from October fell -0.7% following a -0.5% drop in September and a -10% plunge in August. Meanwhile the U.S. continues to see healthy auto sales. The latest numbers from November suggest the U.S. is on pace to see 17.2 million cars sold this year. That's the strongest pace since 2003.

The biggest economic report of the week was the U.S. nonfarm payroll report. Economists were expecting about 228,000 new jobs in November. The Bureau of Labor Statistics said the November number was +321,000. That is higher than the highest forecast than all the economists polled by Bloomberg. November's +321K is the best month of job gains since January 2012 when the U.S. added +360K.

The government also revised the October jobs number higher from +214K to +243K. September's was revised higher from +256K to +271K. The three-month average is now up to +278,000. Thus far 2014 has been the best year for job creation since 1999. The government also reported that the headline unemployment rate was unchanged at 5.8%. Labor force participation was also unchanged at 62.8%.

Overseas Economic Data

China reported its non-manufacturing PMI improved slightly from 53.8 to 53.9. Numbers above 50.0 suggest growth. I thought the S&P 500's rally from its October low (+14.0%) was impressive. Yet the Chinese Shanghai Composite is soaring. Expectations for the Chinese government to launch even more stimulus has powered their index to a +20% gain in less than three weeks. The Shanghai Composite is now at multi-year highs.

Meanwhile Europe continues to languish. The latest reading on Eurozone Q3 GDP was unchanged at +0.2% growth. France said their unemployment last quarter rose from 10.1% to 10.4%. This is worse than expected and the highest unemployment since 1998. Germany reported its factory orders improved +2.5%, which was significantly above expectations. The German Bundesbank lowered their 2014 GDP estimate for Germany from 1.9% to 1.4% growth. They also lowered their 2015 estimates from +1.8% to +0.8% growth.

The European Central Bank (ECB) was also lowering their forecasts. Last Thursday was the last ECB meeting for 2014. The governing council is now forecasting inflation to be 0.5% in 2014 and 0.7% in 2015. They're expecting full year 2014 growth to be +0.8% while 2015 has been downgraded to +1.0%, that's down from their prior estimate of +1.6%.

Many people were expecting ECB President Mario Draghi to announce some new form of stimulus or QE measures on Thursday. Once again he did not. This man has perfected the art of all talk and no delivery. He's been promising to do "whatever it takes" for two years. According to Bloomberg, now the ECB is planning launch new QE measures at the upcoming January meeting. Mario's failure to deliver new stimulus briefly suppressed the markets on Thursday. I'm a little surprised equities didn't see more weakness. Instead the ECB is dangling the carrot of more QE measures next month.




Major Indices:

The S&P 500 found support near 2050 on Monday last week. The big cap index has rebounded back to new all-time highs. The +0.38% gain last week puts the current streak at seven up weeks in a row. Year to date the S&P 500 is up +12.3%.

The index is overbought and due for a correction but it may not happen this year. The path of least resistance is up. The next resistance level is probably the 2100 mark.

chart of the S&P 500 index:

The NASDAQ composite posted a minor loss for the week of -0.2%. The composite index continues to find support near its 10-dma. The 4800 area remains short-term overhead resistance. Should the NASDAQ retreat then the 4700 level is the next numerical support. Below 4700 then the 4600 is likely stronger support. The NASDAQ's 2014 gain is currently +14.5%.

chart of the NASDAQ Composite index:

The small cap Russell 2000 ($RUT) managed to outperform the large cap indices last week with a +0.78% bounce. Unfortunately, it's tough to get too excited here. The $RUT has been churning sideways for the last several weeks. Even if the $RUT breaks through short-term resistance in the 1190 area then its all-time highs near 1210-1215 remain a challenge. We can probably take some comfort in the fact that the $RUT did not break support near 1150 and its 200-dma. Year to date the $RUT is up +1.5%.

chart of the Russell 2000 index



Economic Data & Event Calendar

The pace of economic data slows this week. There is no central bank activity to worry about. There are no major economic reports to move the market. Earnings are over until mid January.

Economic and Event Calendar

- Monday, December 08 -
Germany's industrial production

- Tuesday, December 09 -
Wholesale inventory data

- Wednesday, December 10 -
(nothing significant)

- Thursday, December 11 -
Weekly initial jobless claims
U.S. retail sales for November
Business inventory data for November

- Friday, December 12 -
Producer Price Index (PPI)
University of Michigan Consumer Sentiment survey
China industrial production

Additional Events to be aware of:

December 17: FOMC meeting

Looking Ahead:

As we look ahead the market will turn its attention to Christmas and the end of the year. Christmas is just 13 trading days away. You have 17 shopping days left. We only have 17 trading days left in 2014.

Seasonal trends are bullish for stocks. December is one of the strongest months of the year for equities. Pretty soon you'll start hearing about the possibility of a Santa Claus rally. Money mangers will be chasing winners trying to improve their results before the calendar rolls over. That also means that the worst performing stocks in the market could face some tax-loss selling.

As you know there was a lot of hype about Black Friday before Thanksgiving and the final numbers didn't pan out to expectations. Yet I suspect the environment has changed. Black Friday's traffic and shopping numbers came in low only because so many stores started their Black Friday deals days before the actual event. Consumers are still shopping but they're doing a lot of it online.

Wal-Mart (WMT) said Black Friday was their best online shopping day in history. The Guardian reported that Cyber Monday drew big business with online shopping up +17%. ComScore reported that Cyber Monday saw sales hit a record-breaking $2.04 billion in a single day. It seems like the American consumer has outgrown standing outside in the cold waiting for doors to open. It's much more comfortable to stay home and shop in your pajamas.

Speaking of shopping, consumers should have a more cash to spend this year. We've been talking about the drop in gas prices for months. The Washington Post noted that Americans are saving $630 million every single day with gas currently at four-year lows. If gasoline prices were to stay at current levels it would provide an extra $230 billion to the American consumer and most of that would get spent elsewhere, which would be a major economic boost for the country.

As we look at the last three and a half weeks of 2014 odds are the market will continue to slowly drift higher. Currently the major indices are very overbought and due for a correction but that doesn't mean we can't stay overbought.

~ James







Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The bullish momentum continues as big cap stocks continue to lead the way. The S&P 500 and the Dow Industrials both closed at new records after posting their seventh weekly gain in a row.

Watch list candidates MU and TM graduated to our active play list last week.

I have updated the stop losses on FDX, HUM, and the 2015 CHKP trade.

Disclaimer: At any given time the author may have positions in any or all of any companies mentioned in the Leaps Newsletter.

--Position Summary Table--
Table lists Directional CALL or PUT/LEAPS only.
Insurance puts, if applicable, are not shown.

Red symbol/name represents a play or option position exited or closed this week.




New Plays

Banking Stocks Rally

by James Brown

Click here to email James Brown


- New Trades -


Bank of America - BAC - close: $17.68

Comments:
12/07/14: Ka-ching! Banking stocks were showing relative strength last week. BAC helped lead the way. Investors bought the dip after Monday's market-wide decline. By Friday BAC was breaking out past resistance in the $17.50 area.

Our plan was to wait for BAC to close above $17.55 and then buy calls the next day. Friday's close at $17.68 qualifies. Our trade will open on Monday morning (December 8th).

More conservative investors may want to wait for a close above $18.00 instead.

Earlier Comments: November 09, 2014:
BAC is one of the biggest banks on the planet. They provide banking services to individuals, small business, big business, institutions, and governments. They have over 5,000 locations and over 16,000 ATMs.

The company's most recent earnings report was October 15th. They managed to beat Wall Street's estimates on both the top and bottom line with a loss of only $0.01 per share on revenues of $21.43 billion. The loss was due to a $5.3 billion settlement with the U.S. Department of Justice, part of the larger, record-breaking $16.7 billion settlement over the mortgage scandal dating back to Countrywide and the financial crisis of the last decade. BAC actually made $168 million for the quarter and that's including the huge $5 billion settlement payment but when you account for the $238 million it paid in dividends the final profit number was negative (-$0.01).

Legal issues have been a black cloud for the banking industry for years and a shadow over BAC but following the $16.7 billion settlement with the DoJ the worst is probably behind it for the big bank. While the industry may still see volatile headlines about future fiascos BAC management has been building up their litigation reserves to handle it.

Banking stocks as a group should help lead the market higher as the U.S. economy continues to improve. When the Federal Reserve finally starts raising interest rates next year it should also be another tailwind for the banks.

Tonight I am suggesting we wait for BAC to close above $17.55 and buy calls the next morning with a stop loss at $15.35. More conservative investors may want to wait for BAC to close above previous resistance at $18.00 as an alternative entry point.

trigger: Wait for BAC to close above $17.55 and then buy calls the next morning with a stop at $15.35.

BUY the 2016 Jan $20 call (BAC160115c20) current ask $0.79

12/08/14 trade begins.
12/05/14 BAC closes at $17.68, above our $17.55 trigger
Option Format: symbol-year-month-day-call-strike

Chart

Originally listed on the Watch List: 11/09/14



Play Updates

Updating A Few Stop Losses Tonight

by James Brown

Click here to email James Brown

Editor's Note:

We added MU and TM from the watch list to our active play list below.

FDX and HUM have new stops. The 2015 CHKP position has a new stop loss.


Closed Plays



None. No closed plays this week.




Play Updates


Checkpoint Software Tech. - CHKP - close: 77.41

Comments:
12/07/14: CHKP's 10-cent gain for the week was enough push shares up eight weeks in a row. A closer look shows CHKP consolidating sideways in the $76-78 zone for the last three weeks.

We are running out of time on our 2015 January calls. More conservative investors may want to exit that trade now. I am raising our stop loss for the 2015 call trade to $75.65. We still want to exit our 2015 calls if CHKP can trade up to $79.50.

We will keep the stop loss at $69.45 if you are trading the 2016 calls. I'm not suggesting new positions at this time.

NOTE: The 2015 January calls only have about seven weeks left.

Earlier Comments: September 14, 2014:
CHKP is another technology stock and it is similar to AKAM in that both have beaten earnings estimates every quarter this year and both are trading near 14-year highs. While AKAM facilitates Internet traffic, CHKP seeks to guard its clients against Internet hazards.

The company describes itself as, "the worldwide leader in securing the Internet, provides customers with uncompromised protection against all types of threats, reduces security complexity and lowers total cost of ownership. Check Point first pioneered the industry with FireWall-1 and its patented stateful inspection technology."

"Today, Check Point continues to develop new innovations based on the Software Blade Architecture, providing customers with flexible and simple solutions that can be fully customized to meet the exact security needs of any organization. Check Point is the only vendor to go beyond technology and define security as a business process. Check Point 3D Security uniquely combines policy, people and enforcement for greater protection of information assets and helps organizations implement a blueprint for security that aligns with business needs. Customers include tens of thousands of organizations of all sizes, including all Fortune and Global 100 companies. Check Point's award-winning ZoneAlarm solutions protect millions of consumers from hackers, spyware and identity theft."

It feels like a week doesn't go by that we don't hear about another major hacking scandal in the business world. It's not going away and corporations have to constantly update their cyber defense. CHKP has been working cyber security since 1993.

Shares of CHKP spent much of this year consolidating gains from 2013. However, the last week of August produced a crucial breakout past resistance near $70.00. Tonight I am suggesting a trigger to buy calls if CHKP can close above $72.50. We'll start with a stop at $69.45. The point & figure chart is bullish and currently forecasting an $89.00 target. We'll start with a long-term target in the $95-100 zone (our target to exit the 2015 calls will be lower).

- Suggested Positions -
OCT 27, 2014 - entry price on CHKP @ 72.56, option @ 1.35*
symbol: CHKP150117C75 2015 JAN $75 call - current bid/ask $3.10/3.40
Exit target for 2015 calls is CHKP @ 79.50, stop loss $75.65

- or -

OCT 27, 2014 - entry price on CHKP @ 72.56, option @ 4.80*
symbol: CHKP160115C80 2016 JAN $80 call - current bid/ask $6.20/6.50
Stop loss @ 69.45 if you're trading the 2016s.

12/07/14 raise the stop loss on the 2015 calls to CHKP @ 75.65
11/30/14 2015 January call exit target CHKP @ 79.50, stop $74.40
10/27/14 trade begins. CHKP opens at $72.56
10/24/14 CHKP meets our entry point requirement with a close at $72.70. Trigger was a close above $72.50
10/05/14 Friday's move might signal the end of the pullback.
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

Current Target: see above
Current Stop loss: see above
Play Entered on: 10/27/14
Originally listed on the Watch List: 09/14/14


China Mobile Limited - CHL - close: $61.41

Comments:
12/07/14: The last couple of days have seen a decent bounce in shares of CHL. Unfortunately the $63.25 area remains overhead resistance. I would wait for a close above this level before initiating new bullish trades.

Earlier Comments: November 9, 2014:
China Mobile (CHL) is the boasts both the largest mobile network on the planet and the biggest mobile customer base. At the end of the third quarter they had 799.1 million customers. Of that 244.4 million are 3G users and 40.9 million are new 4G users. That last number is significant since the Chinese government just approved 4G licenses this year. CHL had zero 4G customers at the start of 2014 and only 13.9 million at the end of the second quarter.

CHL reported earnings on October 20th and the results were worse than expected. Q3 revenues were down -2% from a year ago to 156.6 billion yuan. That was below analysts' estimates. Yet profits managed to beat expectations at 24.9 billion yuan. The company said that the big drop was due to a sharp decline in SMS (text message) usage. This is due to strong competition in the SMS market from other companies like Tencent's WeChat application. A new VAT tax that started in June also hurt results.

Investors seem to be ignoring CHL's recent earnings miss and focusing on their 4G growth. The company has been investing heavily in its 4G networking and it seems to be paying off. The shocking growth of CHL's 4G customer basis has analysts raising estimates. One firm was estimating 50 million 4G customers this year but have since raised that to 70 million. They also expect CHL will add another 130 million next year to end 2015 at 200 million new 4G customers. This should boost the company's profitability since 4G customers use more data.

The stock bounced near $56.60-57.00 last month, which was a 50% retracement of the July-September rally. The lows in October look like a bullish double bottom and the point & figure chart is bullish and forecasting a long-term target of $108.

Tonight I am suggesting we wait for CHL to close above $62.65 and buy calls the next morning with a stop loss at $56.40. However, I am suggesting we keep our position size small. CHL is a foreign company and its stock will gap open, up or down, every morning as it adjusts for trading in the Chinese markets.

- Suggested Positions -
NOV 11, 2014 - entry price on CHL @ 61.39, option @ 2.80
symbol: CHL160115C70 2016 JAN $70 call - current bid/ask $2.60/2.90

11/11/14 trade begins. CHL gaps down at $61.39
11/10/14 CHL closes at $62.68, above our trigger of $62.65
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined (likely the $75-85 range)
Current Stop loss: 56.40
Play Entered on: 11/11/14
Originally listed on the Watch List: 11/09/14


The Walt Disney Company - DIS - close: $93.76

Comments:
12/07/14: Our new DIS trade is off to a decent start. Last week the company announced they were raising their annual dividend by 34% to $1.15 a share. DIS ended the week at another all-time high. If you're looking for a new entry point I suggest patience and a buy-the-dip strategy near $92.00.

Earlier Comments: November 9, 2014:
DIS is considered a diversified entertainment company. The company with its subsidiaries is an international family entertainment giant. Their media networks division includes the Disney/ABC Television Group and ESPN Inc. Their Parks and Resorts business runs 11 theme parks and 44 resorts. Their studio business has been making movies for over 90 years. Their acquisition of Marvel Studios was a genius move and they recently purchased Lucasfilm which brought the Star Wars franchise into Disney's stable of intellectual property. DIS' consumer products division makes everything from toys to books to fine art based on their massive library of content and characters.

The company has been a consistent winner in the earnings camp. DIS beat Wall Street's earnings estimates the last four quarters in a row. They've beaten on both the top and bottom line the last three quarters in a row. Their most recent earnings report was November 6th, which was DIS' fourth quarter result for 2014. According to DIS' CEO their fiscal 2014 was another record setting year for profits and marked their fourth year in a row of record performances.

DIS's results last year were driven by the studio division, which saw operating profits more than double. The company has seriously been knocking it out of the park with their movies. 2013 had some pretty big hits but Frozen, which came out n November 2013, is one of the biggest animated movies of all time and helped drive results well into 2014. Other big winners for the studio division were Capitan America: Winter Soldier, Maleficent, and the hit of the summer Guardians of the Galaxy. This weekend DIS' new animated movie Big Hero Six is already beating the competition and outpaced Interstellar in their opening weekend.

Next year should be another banner year for DIS' studio division with blockbusters like the next Avenger's movie, another Pixar film, and the next chapter in the Star Wars saga, episode seven (comes out in December 2015). All of these films help fuel business for Disney's theme parks, consumer products, and video games.

Wall Street was looking for DIS to report their Q4 earnings of $0.88 on revenues of $12.37 billion. The company beat estimates with a profit of $0.89 (+12%) and revenues rising +7.1% to $12.39 billion. Looking back over 2014 DIS said their earnings results were up 26% above 2013.

The stock is only a couple of points from all-time highs and the point & figure chart is bullish with a $119 long-term target. We recently concluded a successful trade on DIS back in October. We would like to hop on board again if shares can breakout past resistance at the $92 level.

Tonight I am suggesting a trigger to buy calls if DIS can close above $92.25. We'll start with a stop loss at $87.25.

- Suggested Positions -
DEC 01, 2014 - entry price on DIS @ 92.63, option @ 5.00
symbol: DIS160115C100 2016 JAN $100 call - current bid/ask $5.15/5.25

12/01/14 trade begins. DIS opens at $92.63
11/28/14 DIS closes at $92.51, above our suggested trigger, above $92.25
Option Format: symbol-year-month-day-call-strike

Current Target: DIS @ TBD
Current Stop loss: 87.25
Play Entered on: 12/01/14
Originally listed on the Watch List: 11/09/14



FedEx Corp. - FDX - close: 182.03

Comments:
12/07/14: FDX has been a monster with another strong weekly gain. Shares are up eight weeks in a row. This can't last forever. FDX will eventually correct lower.

We have the 2016 calls with over a year left to go. Yet I'm really tempted to exit prior to FDX's upcoming earnings report on December 17th. We could exit prior to the report and jump back in if shares correct. We will tentatively plan to exit on Monday, Dec. 15th.

Tonight I'm raising our stop loss to $173.75.

I am not suggesting new positions at this time.

Earlier Comments: October 19, 2014:
FDX is one of the largest package delivery companies in the world. The company's most recent earnings report showed improvement. FDX beat Wall Street's estimates on both the top and bottom line. Profits were up +24% from a year ago and it was the second quarter in a row that FDX beat estimates.

Management said their 2015 fiscal year was off to a great start. The company has enough demand they have recently raised prices on some services.

The plunge in crude oil and fuel prices is a huge tailwind for FDX. As a transportation company the cost of fuel is a major expense. With oil at four-year lows it should be a boost to FDX margins.

FDX should also benefit from the growth in online shopping. Last year there was a huge last minute surge in Christmas sales that needed to be delivered quickly by companies like UPS and FDX. This year online shopping is expected to grow +17%. That's another bonus for FDX.

The stock has been volatile thanks to the market's big swings but FDX is still respecting its long-term bullish trend of higher lows.

Tonight I am suggesting we wait for a close above $158.00 and buy calls the next morning with a stop loss at $148.50.

- Suggested Positions -
OCT 22, 2014 - entry price on FDX @ 160.74, option @ 12.65*
symbol: FDX160115C170 2016 JAN $170 call - current bid/ask $23.65/24.25

12/07/14 new stop @ 173.75
11/30/14 new stop @ 164.00
11/09/14 new stop @ $158.00
11/02/14 new stop @ $154.00
10/22/14 trade begins. FDX opens at $160.74
*option entry price is an estimate since the option did not trade at the time our play was opened.
10/21/14 triggered with a close at $159.88, above our trigger of $158.00
Option Format: symbol-year-month-day-call-strike

Current Target: FDX @ TBD
Current Stop loss: 173.75
Play Entered on: 10/22/14
Originally listed on the Watch List: 10/19/14


Humana Inc. - HUM - close: 144.32

Comments:
12/07/14: HUM is looking a lot healthier with a solid breakout past resistance in the $140 area. This past week the company reaffirmed their earnings guidance. On Friday the stock received bullish analyst comments and a new price target at $160.00.

If you're looking for a new entry point then consider buying the next bounce from the $140.50 area. Tonight we will raise the stop loss to $134.00.

Earlier Comments: October 19, 2014:
HUM is in the healthcare sector. The company offer health insurance. Right now that's a good spot to be as the system irons out the kinks in the Affordable Care Act (a.k.a. Obamacare). Thus far Obamacare has been a boon to insurers as more and more Americans sign up for health insurance.

Shares of HUM did see a pullback from its recent highs near $136 down to $121 (a -11% correction) but now HUM is on the rebound. Even with the pullback HUM still has a long-term bullish trend of higher lows. The point & figure chart is bullish and suggesting a long-term target of $173.00.

Tonight I am suggesting we wait for HUM to close above $130.25 and then buy calls the next morning with a stop loss at $119.75. I do want to warn you that HUM is scheduled to report earnings on November 7th but several of its peers (AET, CI, and WLP) will report earnings in the next two weeks (before the end of October). Their quarterly results and guidance (good or bad) could influence shares of HUM.

- Suggested Positions -
OCT 22, 2014 - entry price on HUM @ 133.75, option @ 13.25*
symbol: HUM160115C140 2016 JAN $140 call - current bid/ask $17.70/20.10

12/07/14 new stop @ 134.00
11/09/14 new stop @ 124.00
10/22/14 trade begins. HUM opens at $133.75
*option entry price is an estimate since the option did not trade at the time our play was opened.
10/21/14 triggered. HUM closed @ 133.27, above our suggested entry above $130.25
Option Format: symbol-year-month-day-call-strike

Current Target: HUM @ TBD
Current Stop loss: 134.00
Play Entered on: 10/22/14
Originally listed on the Watch List: 10/19/14


Micron Technology - MU - close: 36.49

Comments:
12/07/14: Semiconductor stocks have continued to perform well and MU ended the week at another multi-year high. Yet Monday's market sell-off was exactly what we needed. The plan was to buy calls on MU if shares dipped to $35.10. We got a chance to buy calls on MU on both Monday and Tuesday before the stock rebounded.

Earlier Comments: November 30, 2014:
MU is in the technology sector. The company is part of the semiconductor industry. They make memory chips. According to a company press release, "Micron Technology, Inc., is a global leader in advanced semiconductor systems. Micron's broad portfolio of high-performance memory technologies—including DRAM, NAND and NOR Flash—is the basis for solid state drives, modules, multichip packages and other system solutions. Backed by more than 35 years of technology leadership, Micron's memory solutions enable the world's most innovative computing, consumer, enterprise storage, networking, mobile, embedded and automotive applications."

The semiconductor space has been a strong performer this year with the SOX semiconductor index up +20% in 2014. That outperforms the NASDAQ's +14.7% and the S&P 500's +11.8% gain. MU is beating all of them with a +65.2% rally in 2014.

The company has been beating Wall Street's earnings and revenue estimates all year long. Their most recent report was MU's Q4 results that came out in September. Analysts expected a profit of $0.81 on revenues of $4.15 billion. MU delivered $0.82 as revenues soared +48.7% to $4.23 billion.

Management then raised their Q1 revenue guidance into the $4.45-4.70 billion range, which was above analysts' estimates. They also announced at $1 billion stock buy back program. Following its results and the buy back news the stock has seen several price target upgrades. Many brokers have price targets in the low to mid $40s. One firm has a $60 target.

Technically shares look very bullish with a breakout past major resistance in the $35.00 area. More aggressive investors may want to buy calls now. After a sharp two-week rally I am hoping for a little pullback. Broken resistance at $35.00 should be new support. We will set a buy-the-dip trigger at $35.10.

- Suggested Positions -
DEC 01, 2014 - entry price on MU @ 35.10, option @ 3.75
symbol: MU160115C40 2016 JAN $40 call - current bid/ask $4.35/4.45

12/01/14 triggered @ 35.10
Option Format: symbol-year-month-day-call-strike

Chart of MU:

Current Target: MU @ TBD
Current Stop loss: 29.40
Play Entered on: 12/01/14

Originally listed on the Watch List: 11/30/14


Restoration Hardware - RH - close: 85.18

Comments:
12/07/14: Shares of RH ended the week on an up note with the stock up +2.6% on Friday. Yet shares have been essentially consolidating sideways in the $82-86 zone the last several days. Investors could be waiting for the company's earnings report.

RH announced they will report quarterly results on December 10th (Wednesday), after the closing bell. Analysts are expecting a profit of $0.47 per share. If RH disappoints would could see the stock crumble and hit our stop loss (currently $76.40).

I am not suggesting new positions at this time.

Earlier Comments: November 16, 2014:
RH is in the services sector. They operate in the home furnishing industry. The company describes itself as "Restoration Hardware is a luxury brand in the home furnishings marketplace offering furniture, lighting, textiles, bathware, décor, outdoor and garden, as well as baby & child products. RH operates an integrated business with multiple channels of distribution including Galleries, Source Books and websites."

"We believe RH is one of the most innovative and fastest growing luxury brands in the home furnishings marketplace. We believe our brand stands alone and is redefining this highly fragmented and growing market, contributing to our superior sales growth and market share gains over the past several years as compared to industry growth rates. Our ability to innovate, curate and integrate products, categories, services and businesses with a completely authentic and distinctive point of view, then rapidly scale them across our fully integrated multi-channel infrastructure is a powerful platform for continued long-term growth. We evolved our brand to become RH, positioning our Company to curate a lifestyle beyond the four walls of the home. Our unique product development, go-to-market and supply chain capabilities, together with our significant scale, enable us to offer a compelling combination of design, quality and value that we believe is unparalleled in the marketplace."

If you look at a daily chart of RH you'll likely see the big gap higher in June. That was a reaction to the company's earnings report . They beat Wall Street's estimates on both the top and bottom line. Management also guided higher. The post-earnings rally peaked in June and RH has been slowly consolidating lower for the last four months.

Their most recent earnings report was September 10th. Analysts were expecting a profit of $0.64 a share on revenues of $454 million. RH beat estimates with earnings up +37% from a year ago to $0.67 a share. Yet revenues were a miss at $433.8 million. RH blamed the revenue miss on a later than usual catalog mailing. While it was a disappointment RH's Q2 sales still grew +13.5% while margins increased 240 basis points to 11.3%, a record for the company. Investors should also note that the +13% surge in sales followed a +30% jump in sales a year ago. Gary Friedman, RH's Chairman and Chief Executive Officer, commented,

"Our ability to innovate, curate and integrate new products, categories and businesses, then test and rapidly scale them across our multi-channel platform, is at the core of RH becoming a disruptive brand in the home furnishings marketplace. In the second quarter, we achieved a record operating margin of 11.3%, a 240 basis point improvement versus last year, and the driver of our earnings over-performance. Comparable brand revenue for the quarter increased 13% on top of a 30% increase a year ago – representing an industry-best 43% gain over the two-year period."

RH raised their Q3 guidance above Wall Street's estimates on both the top and bottom line. Their 2015 guidance was only in-line with consensus estimates. A couple of weeks later the stock was rising on news that its CEO had purchased almost 26,000 shares around $77.

Technically shares of RH have bounced at a long-term trend of higher lows. It's also breaking out past resistance near $80, past resistance at its 50-dma, and now it's 100-dma. The recent rally has created a buy signal and a $93 price target on the point & figure chart.

Bears will argue that RH is too expensive. They have a point. The stock has a P/E around 49. Yet growth names can sport pretty high valuations. If you have been reading the newsletter commentary then you already know that holiday spending should be stronger than normal this year. Online shopping is expected to be very strong, which should benefit RH, who has a big catalog business.

If this rally continues the stock could see some serious short covering. The most recent data listed short interest at 32.4% of the small 32.4 million share float.

More aggressive investors may want to buy calls now. I am suggesting we wait for RH to close above $84.25 and then buy calls the next morning with a stop at $76.40. I will warn you that RH will likely report earnings in mid December and shares will probably be volatile following this report.

- Suggested Positions -
NOV 22, 2014 - entry price on RH @ 88.93, option @ 15.70*
symbol: RH160115C90 2016 JAN $90 call - current bid/ask $12.20/14.60

12/07/14 Caution! RH announced they will report earnings on Dec. 10th
11/21/14 trade begins. RH gaps higher at $88.93
11/20/14 triggered with a close at $87.48, above our trigger at $84.25
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

Current Target: RH @ TBD
Current Stop loss: 76.40
Play Entered on: 11/21/14
Originally listed on the Watch List: 11/16/14


Raytheon Co. - RTN - close: $107.62

Comments:
12/07/14: RTN briefly traded above short-term resistance at $108 on Thursday. Shares spiked up toward $110 and actually closed there but profit taking on Friday pulled RTN back toward its simple 10-dma.

Depending on your trading style you could wait for a close above $108.00 or a dip back toward $105.00 as the next entry point on RTN.

Earlier Comments: November 23, 2014:
RTN is in the industrial goods sector. They are part of the aerospace and defense industry. The company has four main businesses: integrated defense systems; intelligence, information and services; missile systems; and space and airborne systems.

A company press release describes RTN as "Raytheon Company, with 2013 sales of $24 billion and 63,000 employees worldwide, is a technology and innovation leader specializing in defense, security and civil markets throughout the world. With a history of innovation spanning 92 years, Raytheon provides state-of-the-art electronics, mission systems integration and other capabilities in the areas of sensing; effects; and command, control, communications and intelligence systems, as well as cyber security and a broad range of mission support services."

The defense stocks have managed to perform exceptionally well last year and still outperform the major market indices this year in spite of reduced defense budgets from Washington. Revenues have been down from year ago levels but these companies are leaner and more profitable.

RTN's most recent earnings report was October 23rd. Wall Street was expecting a profit of $1.60 a share. RTN delivered $1.65, which was up from $1.51 a year ago. RTN's backlog hit $33.2 billion, up $1 billion from a year ago. The company narrowed their prior 2014 guidance. While not inspiring the stock rallied anyway.

A couple of weeks later RTN announced they had acquired privately held Blackbird Technologies for $420 million. Blackbird provides cybersecurity, surveillance, and secure communications to America's spy agencies. According to RTN, "Blackbird Technologies also provides key synergies with Raytheon's existing cybersecurity, sensor, communications and command and control capabilities. With this transaction, Raytheon becomes one of the top industry partners to SOCOM."

Shares of RTN have spent the last three weeks digesting its gains in a $102-106 trading range. The stock displayed relative strength on Friday and looks poised to breakout past resistance. These are new all-time highs for the stock.

We want to be ready to catch the breakout. I am suggesting we wait for RTN to close above $106.50 and then buy calls the next morning with a stop loss at $99.00. Our target is the $135-140 zone.

- Suggested Positions -
NOV 25, 2014 - entry price on RTN @ 106.52, option @ 4.85
symbol: RTN160115C115 2016 JAN $115 call - current bid/ask $ 4.75/5.05

11/25/14 trade begins. RTN opens at $106.52
11/24/14 RTN closes at $106.59, above our trigger of $106.50
Option Format: symbol-year-month-day-call-strike

Current Target: RTN @ 135.00-140.00 zone
Current Stop loss: 99.00
Play Entered on: 11/25/14
Originally listed on the Watch List: 11/23/14


Toyota Motor Corp. - TM - close: 129.03

Comments:
12/07/14: It was a big week for shares of TM with the stock rising almost $6. The plunging Japanese yen is good for exporters like TM. The stock is up six days in a row. Last week we added TM to our watch list. The plan was to wait for shares to close above $124.00 and then buy calls the next day. Our trade was triggered with Monday's close at $124.94. TM gapped open again on Tuesday at $126.56 (our entry point).

It certainly did not hurt that last week TM said its November 2014 sales ere up +3% year over year. Industry wide the U.S. is on pace to sell 17.2 million autos in 2014. That's an improvement from a 16.5 million pace set in October. That's the strongest pace in years.

Our trade is open but TM now looks short-term overbought. I'm not suggesting new positions at the moment. If you missed the entry point I would wait for a pullback.

We will raise the stop loss to $119.00.

Earlier Comments: November 30, 2014:
TM is considered part of the consumer goods sector. The company is a major automotive manufacturer. Headquartered in Japan, TM was founded back in the 1930s. The company now has sales around the globe.

The company led the industry in greener cars with their Prius model of electric-gasoline hybrids. Now they're leading the industry again with a hydrogen fuel cell vehicle. TM unveiled the Mirai, which means "future" in Japanese, as is the first zero-emission vehicle for consumers. The vehicle will go from 0 to 60 MPH in 9 seconds. It has a range of 400-430 miles. The only emission is water vapor.

The Mirai will not be a big seller to start. TM only expects to sell a few hundred units next year. The challenge is the infrastructure so consumers can refuel the hydrogen fuelcell. It will take a few years to really catch on but they're going to get help from various government agencies. The state of California is one example. California hopes to have 1.5 million zero-emission cars on the road by 2025.

I'm not suggesting bullish positions on TM for the Mirai. Hydrogen fuelcell vehicles are not even a drop in the bucket for the global auto market. What should capture investor attentions is the combination of TM's strong sales combined with a central bank stimulus efforts.

TM has already seen strong sales this year. They reported their first half results on November 5th. TM beat estimates and raised their revenue guidance. Falling gas prices boosted sales of SUVs. TM is also seeing sharp growth in China. This past October TM saw their sales in China soar +27% from a year ago. That is on top of a +26% increase in September and a +9% jump in August. New estimates suggest TM is poised to outsell most of its rivals in the U.S. in November too, including big competitors like General Motors, Ford, and Nissan.

TM's secret weapon could be the currency devaluation by the Bank of Japan. The Japanese government is desperate to jump start their economy and avoid deflation. They have launched a massive QE program that is crushing the value of their currency. The yen ended the week at multi-year lows. This is an advantage for a company like TM who exports a lot of their product.

I do have to mention the risk of recall headlines. It seems that the big automakers are being super careful after seeing the Ford fiasco in the last couple of years. Now companies are recalling vehicles all the time. Right now the entire industry is dealing with a defective Takata airbag recall. The top ten automakers all use Takata airbags so it's something that will affect everyone. There is always the risk of another company-specific recall that could hurt TM.

Technically shares of TM have been showing strength and outperforming many of its peers. Shares have actually broken out past resistance near its 2014 July and early November highs. I would be tempted to buy calls now. However, I'd like to see a little more follow through. Tonight I am suggesting we wait for TM to close above $124.00 and then buy calls the next day.

I will warn investors that the prior highs near $135 and $138 could be potential resistance but the point & figure chart is very bullish and forecasting a long-term target of $160.00.

- Suggested Positions -
DEC 02, 2014 - entry price on TM @ 126.56, option @ 8.75
symbol: TM160115C130 2016 JAN $130 call - current bid/ask $ 8.90/9.50

12/07/14 new stop @ $119.00
12/02/14 trade begins. TM opens at $126.56
12/01/14 trade is triggered. TM closes at $124.94, above our 124.00 trigger
Option Format: symbol-year-month-day-call-strike

Chart of TM:

Current Target: TM @ TBD
Current Stop loss: 119.00
Play Entered on: 12/02/14

Originally listed on the Watch List: 11/30/14


Under Armour, Inc. - UA - close: 69.43

Comments:
12/07/14: Most of the market sold off last Monday. UA was no exception. Unfortunately, shares of UA have not recovered from the December 1st drop. Attempts to rally have failed at the 10-dma. UA looks poised to retreat. The relative weakness is a warning signal. It's possible that UA is forming a bearish double top with the peak in September and now the peak in November.

I am suggesting caution on this trade. The technical picture has definitely deteriorated. Last week's pullback has created a bearish engulfing candlestick reversal pattern on UA's weekly chart. If we see further weakness this week I'm tempted to drop it.

No new positions at this time.

Earlier Comments: November 16, 2014:
UA is in the consumer goods sector. "Under Armour, the originator of performance footwear, apparel and equipment, revolutionized how athletes across the world dress. Designed to make all athletes better, the brand's innovative products are sold worldwide to athletes at all levels. Under Armour's wholly owned subsidiary, MapMyFitness, powers one of the world's largest Connected Fitness communities. The Under Armour global headquarters is in Baltimore, Maryland." (source: company press release)

Apparel sales can be tricky as fashion fads come and go. Yet right now athletic wear has been gaining traction. As a whole sales of athletic wear are up +9% in the past year. Two giants in this industry, Nike (NKE) and Under Armour (UA), are outperforming the group.

NKE is the giant with annual sales of $28.8 billion. UA is a tenth the size of NKE at $2.87 billion a year in sales. It's not surprising to see UA outgrowing its rival. NKE managed +15% sales growth in the third quarter. UA delivered 30%. NKE reported gross margins of 46.6%. UA has gross margins of 49.6%. Both companies delivered earnings growth of more than 20% year over year.

UA is impressive because its apparel sales have been rising +30% for the last three quarters in a row. Apparel is important because it's 75% of UA's business. Investors were a little concerned when apparel sales only grew +25.6% in the third quarter. However, UA has been consistently beating Wall Street's earnings estimates on both the top and bottom line four quarters in a row. They have also raised guidance four quarters in a row.

Their most recent report was October 23rd. UA reported earnings of $0.41 a share with revenues up +29.7% to $937.9 million. Analysts were only expecting $0.40 on revenues of $925 million.

Management raised their Q4 guidance but they warned that growth would slowdown to only +22% in 2015. It's worth noting that UA has a history of under promising and over delivering. The stock initially sold off on this guidance but investors quickly bought the dip. Shares of UA have broken through the two-month trend line of lower highs and technical resistance at the 50-dma. The point and figure chart is bullish and forecasting an $87 target.

The plunge in gasoline prices is a tailwind for retailers and it should be a strong holiday shopping season. Another bonus for UA could be the weather. Last year winter was colder than normal and UA had strong sales of their coldgear line. This year we could see the coldest winter in decades, which could also bode well for UA.

Currently UA is sitting just below potential round-number resistance at $70.00. I am suggesting we wait for UA to close above $70.25 and then buy calls the next day with a stop loss at $64.85. More conservative investors may want to consider an alternative and wait for UA to close above its September highs near $73.40 before initiating positions.

- Suggested Positions -
NOV 20, 2014 - entry price on UA @ 70.20, option @ 6.95
symbol: UA160115C80 2016 JAN $80 call - current bid/ask $ 6.10/6.50

12/07/14 Caution! The action in UA last week looks bearish.
11/20/14 trade begins. UA opens at $70.20
11/19/14 UA closes at $70.48, above our trigger at $70.25
Option Format: symbol-year-month-day-call-strike

Current Target: UA @ TBD
Current Stop loss: 64.85
Play Entered on: 11/20/14
Originally listed on the Watch List: 11/16/14



Watch

Healthcare & Caffeine

by James Brown

Click here to email James Brown


New Watch List Entries

AET - Aetna Inc

SBUX - Starbucks


Active Watch List Candidates

AAPL - Apple Inc.

GS - Goldman Sachs

IP - International Paper


Dropped Watch List Entries

MU and TM have graduated to our active play list.

BAC has been moved to new plays.

CELG and GD have been removed.



New Watch List Candidates:

Aetna Inc. - AET - close: 90.62

Company Info

AET is in the healthcare sector. According to a recent press release, "Aetna is one of the nation's leading diversified health care benefits companies, serving an estimated 46 million people with information and resources to help them make better informed decisions about their health care. Aetna's customers include employer groups, individuals, college students, part-time and hourly workers, health plans, health care providers, governmental units, government-sponsored plans, labor groups and expatriates."

If you study a one-year chart of AET the stock has definitely seen its ups and downs. That's because the healthcare industry has faced a number of issues. AET's CEO commented on this past year in their latest post-earnings conference call.

Mark T. Bertolini, Aetna chairman, CEO and president, said, "some of the challenges we face this year, including pricing solving for nearly $1 billion in ACA related industry fees and taxes, solving for the largest rate cuts to the Medicare Advantage program in our recent history, navigating a host of new regulatory requirements in our small group and individual businesses, managing through a turbulent launch in public exchanges and controlling pharmacy costs in a year where heavy priced Hepatitis C treatments first became available and treatment guidelines changed in unforeseen ways." (ACA stands for Affordable Care Act, a.k.a. Obamacare).

In spite of all these challenges shares of AET are outperforming the major indices with a +32% gain in 2014 compared to a +12% gain in the S&P 500. AET's strength is due to the company's earnings performance. They have beaten Wall Street's earnings estimates and raised guidance three quarters in a row.

AET's most recent quarterly report was October 28th. Analysts were expecting a profit of $1.58 a share on revenues of $14.7 billion. AET delivered a profit of $1.79 a share. Revenues were up +13% to match estimates. The company said they added 470,000 new medical insurance customers in the third quarter, putting the total at 23.6 million.

Bertolini commented on their results, "Aetna reported solid third-quarter results, including our 10th consecutive quarter of membership growth, record quarterly operating revenues, and continued high single-digit pretax operating margin."

The major healthcare companies are reaping the benefits of Obamacare as more people sign up. Management raised their full year 2014 earnings guidance into the $6.60-6.70 zone versus Wall Street's estimate of $6.57.

Just last month AET raised their quarterly dividend 11% to 25 cents a share and added $1 billion to its stock buyback program, up from $464 million. In the last two months the stock has received multiple price target upgrades into the $95-100 zone. The point & figure chart is bullish with a $112.00 target.

The breakout past resistance near $85.00 looks like a significant buy signal. Yet after four weeks of gains I don't want to chase AET here. Tonight I am suggesting a buy-the-dip entry point at $86.00. Eventually AET will see a pullback and we want to be ready. It may not happen soon so we just need to be patient.

Buy-the-dip trigger @ 86.00, stop loss @ 79.00

BUY the 2016 Jan. $90 call (AET160115c90) current ask $9.10

Option Format: symbol-year-month-day-call-strike

Chart of AET:

Originally listed on the Watch List: 12/07/14


Starbucks - SBUX - close: 83.57

Company Info

I listed SBUX as on my radar screen a couple of weeks ago in the new plays section. The rally has continued and shares have broken through major resistance at their 2013 highs.

The company is in the services sector. They're considered part of the specialty eateries industry. The first Starbucks opened in Seattle back in 1971. Today they are a global brand with locations in 66 countries. SBUX operates more than 21,000 retail stores with more than 300,000 workers.

Earnings have only been so-so this year. You can see the results in SBUX's long-term chart below. After incredible gains in 2013 SBUX has essentially consolidated sideways in 2014. The good news is that looks like it's about to change.

The company recently announced a five-year plan to boost its profits and market share. They're going to be expanding deeper into China, Japan, India, and Brazil. SBUX expects to nearly double its stores in China to over 3,000 locations in the next five years. They're also working hard on their mobile ordering technology to speed up the experience so customers don't have to wait in line so long at their busiest locations. SBUX also plans to significantly increase its food revenues.

The company is also building on its Starbucks Evening experience where they will offer alcohol (mainly wine). SBUX was also making headlines on Friday when they launched their first Starbucks Reserve Roastery and Tasting Room in Seattle. The new roastery is supposed to be the ultimate coffee lovers experience.

Analysts came away from SBUX's recent investor day pretty bullish. One firm expects SBUX's stock to double in the next four years. I certainly think SBUX will be higher a year from now. The point & figure chart is bullish and forecasting at $105 target.

SBUX is currently up five weeks in a row. Tonight I am suggesting a buy-the-dip trigger to buy calls at $82.00. More patient investors may want to consider buying a dip closer to $80.00 instead.

Buy-the-dip trigger @ 82.00, stop loss @ 74.75

BUY the 2016 Jan. $90 call (SBUX160115c90) current ask $4.45

Option Format: symbol-year-month-day-call-strike

Chart of SBUX:

Originally listed on the Watch List: 12/07/14


Active Watch List Candidates:



Apple Inc. - AAPL - close: 115.00

Comments:
12/07/14: AAPL experienced a mini-flash crash on Monday with shares plunging about 9:50 a.m. The stock dipped to $111.27 before bouncing. That was almost enough to hit our suggested entry point at $111.00. AAPL did not fully recover from Monday's sell-off and posted a loss for the week, ending a six-week trend of gains.

I am not giving up on a buy-the-dip strategy for AAPL. We will leave our trigger at $111.00. More nimble traders may want to consider $110.00 instead.

Earlier Comments: November 2, 2014:
Love it or hate it AAPL always has Wall Street's attention. It has a cult-like following. The company's success has turned AAPL's stock into the biggest big cap in the U.S. markets with a current valuation of more than $633 billion.

The company is involved in multiple industries from hardware, software, and media but it's best known for its consumer electronics. The iPod helped perpetuate the digital music revolution. The iPhone, according to AAPL, is the best smartphone in the world. The iPad helped bring the tablet PC to the mass market. The company makes waves in every industry they touch with a very distinctive brand (iOS, iWork, iLife, iMessage, iCloud, iTunes, etc.) and they've done an amazing job at building an Apple-branded ecosystem. Now they're getting into the electronic payments business with Apple Pay.

The company's latest earnings report was super strong. AAPL reported its Q4 (calendar Q3) results on October 20th. Wall Street was expecting a profit of $1.31 a share on revenues of $39.84 billion. The company delivered a profit f $1.42 a share with revenues up +12.4% to $42.12 billion. The EPS number was a +20% improvement from a year ago. Gross margins were up +1% from a year ago to 38%. International sales were 60% of the company's revenues.

AAPL's iPhone sales exceeded estimates at 39.27 million in the quarter and up nearly 16% from a year ago. The only soft spot in their ecosystem seems to be iPad sales, which have declined several quarters in a row. The company hopes to rejuvenate its tablet sales with a refresh of the iPad models. More importantly AAPL management raised their Q1 (calendar Q4) guidance as they expect revenues in the $63.5-66.5 billion in the quarter. Recent news would suggest that AAPL might deliver an incredible 50 million iPhone 6s in 2014. That's not counting their new iPhone 6+.

The better than expected results and bullish guidance sent the stock to new highs. The rally has created a quadruple top breakout buy signal on its point & figure chart that is currently forecasting at $133 target. Yet we do not want to chase AAPL here. The stock is up $12 from its October low. We do want to be ready if shares see a pullback.

Tonight I am suggesting a buy-the-dip trigger to buy calls at $103.50 with a stop loss at $98.90.

Buy-the-dip trigger @ $111.00, stop loss @ 98.90

BUY the 2016 Jan. $120 call (AAPL160115c120)

11/30/14 raise the buy-the-dip entry trigger to $111.00
11/16/14 raise the buy-the-dip entry trigger to $108.00
Adjust the strike price to the 2016 Jan $120 call.
Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 11/02/14


Celgene Corp. - CELG - close: 114.13

Comments:
12/07/14: The rally in biotech stocks paused last week. CELG retreated from its early December highs. I don't want to chase CELG here but it seems unlikely that the stock will hit our buy-the-dip entry point at $102.50 any time soon.

Tonight I am removing CELG from the watch list. I'm still bullish on the stock but we need the right entry point. I'd keep it on your radar screen. The key levels to watch are probably $110 and the $100 area.

Trade did not open.

12/07/14 removed from the watch list
11/30/14 raise the buy-the-dip trigger from $97.50 to $102.50
11/16/14 Adjust the buy-the-dip trigger from $100.00 to $97.50. Move the stop loss from $94.75 to $89.00
Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 11/02/14


General Dynamics - GD - close: 145.15

Comments:
12/07/14: Shares of GD are virtually unchanged for the week. This is another high-flying big cap name that refuses to correct lower. We like the relative strength but we do not want to chase it.

Tonight I am removing GD from the watch list. Like CELG, I am still bullish on GD but we just need a better entry point. Keep this one on your radar screen.

Trade did not open.

12/07/14 removed from the watch list

Originally listed on the Watch List: 11/02/14


The Goldman Sachs Group, Inc. - GS - close: $195.45

Comments:
12/07/14: GS displayed relative strength last week and the rally was accelerating on Friday with a surge to multi-year highs. It looks like Monday's dip to the 50-dma may have been the dip entry point we were looking for. Unfortunately shares didn't trade low enough. Our suggested entry point was $185.00 and GS only dipped to $185.59 on December 1st.

Tonight I am updating our entry point strategy. Broken resistance in the $192.00 area should be new support. We will raise our buy-the-dip entry point to $192.25. We'll move the stop loss to $179.00. We'll also raise the option strike to the 2016 January $210 call.

Bear in mind that the $200 level is potential round-number resistance for GS. Plus, shares could be volatile following their earnings report in mid January. Investors may want to start with small positions at first.

Earlier Comments: October 26, 2014:
Goldman is in the financial sector. They are considered part of the national investment brokerage industry. Goldman was founded in the year 1869 and is headquartered in New York. The company provides investment banking and management services to corporations, other financial institutions, governments and high-net-worth individuals. The lion share of their business is institutional client services where GS makes markets in fixed income, equities, currencies, and commodities.

The company's recent earnings report was strong. GS announced its Q3 results on October 16th. As of the first nine months of 2014 their revenues were up $1.4 billion above the same period a year ago. Management has managed to boost profits by reducing costs. A strong mergers and acquisitions market in 2014 has helped drive GS' results as the company is gaining market share.

Looking at their recent results Wall Street expected a profit of $3.21 per share on revenues of $7.8 billion for the quarter. GS delivered $4.57 per shares, a +59% increase from a year ago. Revenues soared +25% to $8.4 billion. GS saw $20 billion in net inflows bumping client assets to $1.15 trillion.

The company does have a habit of crushing analysts' earnings estimates so the market wasn't that surprised. The stock actually sank on these results but the initial weakness is over and GS is rebounding.

The stock experienced a -10% correction from its early October high to the mid October low. The recent breakout past resistance near $180 and all of its key moving averages is encouraging. I would be tempted to buy calls right now. However, I suspect the market might see some mild profit taking after last week's big rally.

Tonight I am suggesting a buy-the-dip entry point at $180.50 with a stop loss at $174.50. Our long-term target is the $220-230 zone.

Buy-a-dip at $192.25 with a stop at $179.00

BUY the 2016 Jan $210 call (GS160115c210)

12/07/14 Strategy update: move the buy-the-dip trigger to $192.25
Move the stop loss to $179.00, move the option strike to 2016 Jan $210 call
11/30/14 move the buy-the-dip trigger to $182.00
11/09/14 adjust buy-the-dip trigger from $183.50 to $185.00
11/02/14 adjust buy-the-dip trigger from $180.50 to $183.50
Option Format: symbol-year-month-day-call-strike

Chart

Originally listed on the Watch List: 10/26/14


International Paper - IP - close: $55.07

Comments:
12/07/14: IP is also showing relative strength. The stock is up four days in a row and challenging resistance at its 2014 high near $55.00. I still do not want to chase IP at current levels. We will give IP one more week and either re-evaluate our entry point strategy or remove it from the watch list.

Earlier Comments: November 16, 2014:
IP is part of the consumer goods sector. According to a company press release "International Paper (IP) is a global leader in packaging and paper with manufacturing operations in North America, Europe, Latin America, Russia, Asia and North Africa. Its businesses include industrial and consumer packaging and uncoated papers. Headquartered in Memphis, Tenn., the company employs approximately 65,000 people and is strategically located in more than 24 countries serving customers worldwide. International Paper net sales for 2013 were $29 billion (which included our now divested xpedx business)."

The company has been facing a lot of headwinds this year but they still managed to beat Wall Street's earnings estimates three quarters in a row. Their most recent earnings report was November 4th. Analysts were expecting a profit of $0.89 per share on revenues of $6.0 billion. IP reported a profit of $0.95 with revenues beating estimates at $6.05 billion.

The company saw significant improvements in its operating profits in all three categories: industrial packaging, printing papers, and consumer packaging. Management expects a surge in packaging orders in the fourth quarter.

Wall Street loves the company's focus on delivering value to shareholders. IP is almost done with their $1.5 billion stock buyback program they announced in September 2013. They also raised their dividend 14% from $1.40 to $1.60. This is IP's third consecutive fourth quarter double-digit dividend increase. The stock now sports a 3.0% yield.

IP's CEO said they were looking seriously at converting part of their business into a master-limited partnership (MLP). This would be another shareholder friendly step as MLPs do not pay federal tax if the return most of their cash to shareholders.

The stock's current rally has produced a buy signal on the point & figure chart with a long-term target at $73.00. This month has seen shares of IP break out to new multi-year highs.

IP is currently up five weeks in a row. We do not want to chase it here. Instead we'd like to buy long-term calls on a dip. The prior highs in the $51 area should offer some support. Tonight I'm suggesting a buy-the-dip trigger at $51.00 with a stop loss at $47.90.

Buy-a-dip @ $51.00, start with a stop at $47.90

BUY the 2016 Jan $55 call (IP160115c55)

Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 11/16/14