Option Investor
Newsletter

Daily Newsletter, Sunday, 12/14/2014

Table of Contents

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

Leaps Trader Commentary

Oil Greases Market Slide

by James Brown

Click here to email James Brown

The continued sell-off in crude oil prices was the main story for the market last week. Oil plunged -12.6% in the last five trading days to five year lows and is down about 50% from its summer 2014 highs. Energy and oil related stocks account for nearly 10% of both the S&P 500 and the Russell 2000 indices. Their weakness was a major anchor around the market last week as the Dow Industrials lost -3.7%, its worst week since 2011. The S&P 500 dropped -3.5% for its worst weekly performance since May 2012. The NASDAQ composite dropped -2.6% and the small cap Russell 2000 fell -2.5%.

It wasn't just the U.S. market either. Globally stocks delivered their worst weekly performance of the year. More than $1 trillion in value was wiped out across the world equity markets. You would think falling oil prices would be beneficial for transports but the transportation average dropped -3.4%. Not surprisingly the oil index was down. The OIX fell almost -9% last week. The oil service index was down -7%. Banks also had a rough week with a -3.7% decline. Meanwhile precious metals bounced with gold up +2.5% and silver soaring +4.6%. All this stock market weakness drove money into the safety of bonds. The yield on the U.S. 10-year note slipped to 2.0%. The 30-year bond yield has fallen to two-year lows at 2.76%.

It is worth noting that it's not just oil. Worries about deflation are rising as other commodities continue to drop. A lot of analysts watch copper since it is a widely used industrial metal. Falling copper demand suggest that economic activity is slowing. Copper managed a bounce last week but it is still trading near five-year lows. Iron ore and steel prices are falling. Coal appears to be in a non-stop march lower. Falling oil and natural gas prices make them more attractive and steals demand from coal (by the way, that hurts the railroads who transport a lot of coal). Even cotton is plunging with a drop from $2.00 to $0.60. We can lay part of the blame here on the U.S. dollar. As foreign currencies like the euro and yen weaken it pushes the dollar higher. Since these commodities are traded in dollars a rising dollar makes the commodities cheaper (you get more value per dollar).

Oil's Slide

Last week saw WTI crude oil fall below $60 a barrel for the first time since July 2009. Today crude oil is about $57.50 a barrel. It was about $108 a barrel back in June. Helping drive the price lower last week was both the International Energy Agency (IEA) and OPEC who both lowered their demand forecast for oil in 2015. You might recall that OPEC helped accelerate oil's decline recently when they decided to not cut production at their late November meeting (Thanksgiving day). This was mainly Saudi Arabia who is willing to see lower prices in order to gain market share and hurt their rivals.

Weekly chart of the U.S. Oil ETF (USO)

The Saudi's plan is already working. They want to see oil production in the United States decline (of course they also want to hurt other producers like Russia, Iran, etc.). The latest data showed that permits for new oil and gas wells sank from 7,227 to 4,520. We could see a significant pullback in new drilling activity in the U.S. if oil prices stay low.

Another facet of the oil price plunge is its impact on the banking industry. You may have noticed that banking stocks were down sharply last week. That's because the market is worried they could see an increase in bad loans from energy companies. A few years ago the U.S. oil exploration and production companies only had about $300 billion in debt. Today that number is over $1 trillion. With oil prices down almost 50% in the last few months that raises the risk of some of the smaller companies defaulting. Another risk the world could face if oil prices stay low is growing unrest in struggling oil exporters. Countries like Venezuela, oil producers in Africa, Iran, even Russia could face trouble as they all count on oil exports to pay their bills and fund their governments.

These countries are facing something of a prisoner's dilemma. If they all cooperate and reduce production then oil prices would rise and they'd all make more money. Unfortunately, this group (mainly OPEC) is notorious for not complying with their own quotas and production guidelines. Instead of cutting production to raise prices these countries will produce even more (if they can) because they need the money to pay their bills and hope to make up their lost revenue on more volume.

There is some speculation that the sell-off in oil could be nearing an end. There was a new story that China had chartered a record number of massive oil tankers because they're taking advantage of these depressed oil prices to stock up on their strategic reserves. The IEA expects that stock piling could be a major influence on oil prices next year.

Economic Data

We did not get a lot of economic data in the U.S. but what we did see was generally positive. Retail sales from October were revised higher from +0.3% to +0.5% and the November reading came in above expectations at +0.7%. Looks like the consumer is doing okay after all.

Speaking of the consumer, the latest consumer sentiment number for December soared five points from 88.8 to 93.8. This is the highest reading since July 2005 and significantly above expectations. The expectations component rose from 79.9 to 86.1.

Meanwhile the wholesale look at inflation in the Producer Price Index (PPI) dropped -0.2% thanks to a sharp drop in energy prices. The energy component dropped -3.1% while gasoline fell -6.3%. The core-PPI, which excludes energy, was unchanged in November.

Overseas Economic Data

There were a number of headlines overseas. The Eurozone industrial production number rose +0.7%, up from +0.2%, and above expectations. The latest Eurozone Sentix Investor Confidence survey improved from -11.9 to -2.5, which was also above estimates.

Germany said their industrial production improved +0.2% from a month ago. Unfortunately their imports in November plunged -3.1%, which is the biggest decline in almost two years. Exports dropped -0.5% compared to a +5.5% gain the prior month. Elsewhere France made headlines when the Fitch rating agency downgraded France's credit rating from AA+ to AA.

Greece was back in the news. The country was granted a two-month extensions on meeting its bailout requirements. Almost immediately the Greek Prime Minister called for new presidential elections. Investors are worried that the party that wants to secede from the Eurozone might win and that sparked a -20% drop in the Greek stock market. Bond yields for a Greek 10-year note soared to about 8%. Normally a yield of 7% or higher for a sovereign 10-year bond is a major warning signal to investors. In contrast money continues to seek safety in German bonds and the yield on the 10-year German note sank to a record low of 0.627%.

Economic data out of China was mixed. Their latest retail sales data showed sales up +11.7%, which was slightly ahead of expectations. Yet their industrial production came in at +7.2%, which missed expectations. Most of the headlines out of Japan were negative. Japan's Q3 GDP estimate was revised down from -0.4% to -0.5%. Japan's core machinery orders plunged -6.4%, down from +2.9%. The latest Japanese household confidence survey dropped from 38.9 to 37.7 when analysts were expecting a rise. They did see their industrial production number improve +0.4% for the month.

We will hear more about Japan this coming week. Prime Minister Shinzo Abe called for new elections a few weeks ago. The election for the Lower House will be today (Sunday, December 14, 2014). It is expected that Abe's LDP party will win. If they do not win it would be very negative for Japan and could spark selling pressure in stocks around the globe.

You can read more about the Japanese election here. It looks like Abe's party did win: Shinzo Abe's coalition wins big in Japan, amid very low voter turnout




Major Indices:

I've been warning readers that the market was overbought and due for a pullback. Honestly I wasn't expecting such a sharp pullback in the middle of December. This month is historically bullish for equities. Not surprisingly the S&P 500 did find support near the 2,000 mark, which is also bolstered by the 50-dma.

I would expect an oversold bounce on Monday. However, if the S&P 500 breaks down under 2,000 then the next support area could be the 1975-1980 zone. Below that the 1950 level is likely support as it will be underpinned by the 200-dma.

Last week's drop in the S&P 500 (-3.5%) brings the year to date gain down to +8.3%.

chart of the S&P 500 index:

The sell-off in the NASDAQ (-2.6%) cut its 2014 gains to +11.4%. Thus far the pullback has been pretty mild. I would expect a dip toward 4600. Below that the 4500 level is probably round-number support. The NASDAQ could see a significant pullback and still keep its long-term up trend. Although I would really start to worry if we saw the NASDAQ close below 4500.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index has spent the last six weeks consolidating sideways in the 1150-1190 range. If we see a breakdown below the 1150 area it could portend a much deeper decline ahead. There is a cloud of moving averages all converging in the 1140-1150 area. If you look real hard the consolidation over the last few weeks almost looks like a bearish head-and-shoulders pattern, which would forecast a drop toward 1100.

Soon we will start to hear the financial media discuss the "January effect" and how small cap stocks tend to outperform the rest of the market in January.

chart of the Russell 2000 index



Economic Data & Event Calendar

This week we will see a few regional Fed surveys from New York, Philadelphia, and Kansas City. The main event is probably the last FOMC meeting of the year. No one expects the Federal Reserve to change interest rates so the focus will be on their statement. Right now market watchers are speculating if the Fed will alter their "considerable period" language that has been in their statement for a long time.

Economic and Event Calendar

- Monday, December 15 -
China's HSBC manufacturing PMI
New York Empire State manufacturing data
Industrial Production
NAHB housing market index

- Tuesday, December 16 -
Eurozone manufacturing PMI
Housing starts & building permits

- Wednesday, December 17 -
Consumer Price Index (CPI)
FOMC meeting
FOMC updates their economic forecast
Fed Chairman Yellen press conference

- Thursday, December 18 -
Weekly initial jobless claims
Philadelphia Fed survey

- Friday, December 19 -
Kansas City Fed manufacturing survey
Quadruple option expiration

Additional Events to be aware of:

Dec. 24th - U.S. markets close early (Christmas Eve)
Dec. 25th - U.S. markets are closed for Christmas

Looking Ahead:

Looking ahead the year is almost over. We have 11 and 1/2 trading sessions left in 2014. You only have 11 days until Christmas. Traditionally stocks tend to move higher in the second half of December. As we get closer to Christmas we're going to hear the financial media discussing our prospects for a Santa Claus rally.

I remain bullish on the U.S. Previously the drop in oil was seen as a blessing because lower oil meant lower prices for gasoline at pump. The less we pay for gas the more money consumers have to spend elsewhere. Yet last week the plunging price of oil was suddenly seen as a bad thing and instead of a blessing for consumers the drop in oil was a reflection of slowing economic activity overseas.

The markets already knew that China, Japan, and Europe were all slowing down so I fail to see why there were new worries about a slowly global economy. Falling gasoline prices are good for the entire planet's consumer spending. The U.S. economy is nearly 70% consumer spending. According to Stephen Stanley, Chief Economist of Amherst Pierpont, every penny that gas prices drop in the U.S. leaves a billion dollars in American's pockets. I heard this figure a few years ago when Deutsche noted back in 2010 that every one cent rise in gasoline equated to a drop of about $1 billion to $1.4 billion in consumer spending elsewhere.

In the last year the American consumer has been given a $62 billion bonus thanks to lower gasoline prices. Now imagine this effect multiplied around the world. Granted, Americans drive more than other countries, but it's still a positive stimulus for the global economy. Back in October we noted that lower gasoline prices could provide more than $1 trillion in stimulus around the globe. On the other hand all of the oil exporting countries will have less money to spend so their government spending will go down.

Believe it or not but Q4 earnings season will begin in a few weeks. Alcoa (AA) will unofficially kick off earnings season on January 12th. The next couple of weeks could bring some earnings warnings. We are hearing companies complain that the sharp rise in the U.S. dollar is hurting their sales overseas. The S&P 500 companies get about half of their revenues overseas so blaming the dollar could be a popular excuse in 2015.

Next year it could be a battle of investor ideas between the U.S. and the rest of the world. We do live in a global economy. If the rest of the world is slowing down economically how long can the U.S. keep growing? Can the U.S. really decouple from the rest of the world?

At the same time if the rest of the world is slowing down and regions like Japan and the Eurozone are devaluating their currency, that makes the U.S. look much more attractive. We already know that Japan's new stimulus includes buying foreign stocks and ETFs. Since the U.S. has the biggest and most liquid market we will be the beneficiary of that program.

The oil sell-off will eventually stop. I suspect that next year we could find some real bargains in the energy sector.

I'd like to think the market's -3% pullback this past week is a new entry point for bullish positions but investors may want to wait for a bounce. The average bull market lasts about 165 weeks long. The current bull market just hit 300 weeks old. That doesn't mean it's going to die any time soon. Bull markets do not come with an expiration date but we were due for a pullback.

Stocks go up. Stocks go down. That's normal life in a stock market. We just need to be patient when it comes to the right entry point.

~ James







Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

Stocks experienced some profit taking last week. That wasn't totally unexpected since the market was overbought and due for a pullback.

Watch list candidates AAPL and GS graduated to our active play list last week.

I have updated the stop losses on CHL, RH, and UA.

Prepare to exit our FDX trade on Monday morning.

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

S&P 500 Snaps 7-Week Run

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(December 14, 2014)

The S&P 500 delivered its worst weekly performance since 2012 and snapped a seven-week winning streak.

The market was overbought and due for a pullback. Many blamed the sell-off in crude oil as the catalyst for the market's decline. Oil definitely affects energy stocks, which make up nearly 10% of S&P 500 components.

The question now is whether or not investors will buy the dip again. The S&P 500 settled right now round-number, psychological support at the 2,000 mark.

In last week's market commentary I suggested the market would most likely drift higher through year end. The sharp sell-off was a surprise. Jeffrey Hirsch with the Stock Trader's Almanac suggested that a mid-December pullback is not that uncommon and stocks normally rebound higher into year end. Let's hope he is right.

I am not adding any new trades tonight. Last week we saw both Apple (AAPL) and Goldman Sachs (GS) graduate from our watch list to our active play list. Tonight I've added ASML and WMT with buy-the-dip triggers to our watch list.

Below I've trimmed my radar screen for potential candidates to keep an eye on.

Radar Screen:
Here is a list of stocks on my radar screen. These have potential to be LEAPS trades down the road if the right entry point presents itself. In no particular order:

BG, TJX, CVS, WAG, COST, NKE, FB,



Play Updates

Prepare To Lock In Gains

by James Brown

Click here to email James Brown

Editor's Note:

Our plan is to exit the FDX trade tomorrow (Monday, Dec. 15th) at the opening bell to lock in potential gains ahead of its earnings report.

AAPL and GS both graduated from our watch list to our play list.


Closed Plays



None. No closed plays this week.




Play Updates


Apple Inc. - AAPL - close: 109.73

Comments:
12/14/14: The correction in shares of AAPL continued last week. The stock is now down two weeks in a row and off about -8% from its recent highs set in late November.

We had AAPL on our watch list with a buy-the-dip trigger at $111.00 although last week I suggested that investors may want to wait for a dip to $110 instead. Fortunately for us our trade opened on the gap down December 9th when AAPL opened at $110.19. The stock immediately bounced but the rebound rolled over under short-term resistance at $115 and its 10-dma.

Given AAPL's relative weakness I suspect that we could see shares trade into the $102-105 area. Our trade is open but tonight I am suggesting investors wait for a dip closer to $105 before launching new positions.

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. (We amended the buy-the-dip trigger to $111.00 on Nov. 30th).

- Suggested Positions -
DEC 09, 2014 - entry price on AAAPL @ 110.19, option @ 9.55
symbol: AAPL160115C120 2016 JAN $120 call - current bid/ask $9.80/10.00

12/09/14 triggered on gap down at $110.19, trigger was $111.00
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

Chart

Current Target: To Be Determined
Current Stop loss: 98.90
Play Entered on: 12/09/14
Originally listed on the Watch List: 11/02/14


Bank of America - BAC - close: $17.13

Comments:
12/14/14: BAC was moved from our watch list to the new play list a week ago after shares met our entry point requirement on Friday, December 5th. Unfortunately it was not a great week for banking stocks. The group turned lower (see tonight's market commentary for more on why banking stocks might be pulling back).

I remain bullish on BAC but investors may want to wait for a new close above $17.50 before launching new positions. Alternatively a dip toward its long-term trend line of higher lows (likely in the $16.25 area) could be another entry point.

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.

- Suggested Positions -
DEC 08, 2014 - entry price on BAC @ 17.66, option @ 0.80
symbol: BAC160115C20 2016 JAN $20 call - current bid/ask $0.74/0.78

12/08/14 trade begins. BAC opens at $17.66
12/05/14 BAC closes at $17.68, above our $17.55 trigger
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 15.35
Play Entered on: 12/08/14
Originally listed on the Watch List: 11/09/14


Checkpoint Software Tech. - CHKP - close: 76.68

Comments:
12/14/14: CHKP managed to ignore the market's weakness last week until finally succumbing on Friday. The stock should find short-term support in the $76.00 area. Below that the next support level is $72.50 and then $70.00.

We are almost out of time on our January 2015 calls. More conservative investors may want to exit that trade now. I have a stop at $75.65 to exit the 2015 calls or if CHKP trades 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 six 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 $2.85/3.00
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 $6.20/6.70
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: $57.75

Comments:
12/14/14: Ouch! It was not a good week for CHL. The stock lost ground every day for the last five days in a row. Shares look headed for their October lows in the $56.40-56.70 area. Tonight I am moving our stop loss from $56.40 to $55.95.

I am not suggesting new positions at this time.

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 $1.75/2.15

12/14/14 adjust stop loss down to $55.95
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: 55.95
Play Entered on: 11/11/14
Originally listed on the Watch List: 11/09/14


The Walt Disney Company - DIS - close: $91.49

Comments:
12/14/14: Hmm... you could say DIS held up reasonably well considering the market's widespread drop and being downgraded last week. The stock did close under short-term support at $92.00. The next support level is $90.00 and then the $88.50 area.

I would be tempted to buy calls here. However, the pullback last week has created a bearish engulfing candlestick reversal pattern on the weekly chart. Investors may want to wait and see if DIS confirms this pattern before initiating new positions.

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 $5.30/5.55

12/14/14 Caution: DIS has created a potential reversal pattern on its weekly chart
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: 175.79

Comments:
12/14/14: Our FDX trade is about over. We still have plenty of time on our January 2016 calls but earnings are coming up on December 17th. The stock has started to correct lower. We adjusted our exit plan last weekend. Tomorrow, Monday, December 15th, we want to exit our FDX trade. After a super strong, multi-week surge to new highs, the stock could be due for significant profit taking.

I would keep FDX on your watch list. We may want to jump back in after its corrects lower.

- Suggested Positions -
OCT 22, 2014 - entry price on FDX @ 160.74, option @ 12.65*
symbol: FDX160115C170 2016 JAN $170 call - current bid/ask $21.30/22.80

12/14/14 prepare to exit tomorrow morning, Dec. 15th
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


The Goldman Sachs Group, Inc. - GS - close: $188.82

Comments:
12/14/14: Financial stocks hit some profit taking last week. That was good news for us since we wanted to buy calls on GS if shares dipped to $192.25. GS hit our trigger on December 10th. We were looking pretty good until Friday when GS underperformed with a -2.4% decline.

Our trade is now open but I would hesitate to launch new positions here. If we are patient we might see a better entry point a week from now.

Don't forget that GS has earnings coming up on January 16th.

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.

- Suggested Positions -
DEC 10, 2014 - entry price on GS @ 192.25, option @ 10.75
symbol: GS160115C210 2016 JAN $210 call - current bid/ask $ 7.50/10.00

12/10/14 GS hit our buy-the-dip trigger at $192.25
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

Current Target: TBD
Current Stop loss: 179.00
Play Entered on: 12/10/14

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


Humana Inc. - HUM - close: 143.60

Comments:
12/14/14: Stocks just delivered a stormy week and HUM weathered it well. Traders bought the dip near support in the $140 area. Shares were bucking the market's down trend on Friday. While HUM's relative strength is encouraging I am not suggesting new positions at the moment due to the broader market weakness.

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 $15.90/20.00

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: 34.00

Comments:
12/14/14: Semiconductor stocks were not immune to the market's pullback. Shares of MU erased the prior two weeks worth of gains with a dip to $34.00.

I am not suggesting new positions at this time.

FYI: MU is scheduled to report earnings on January 6th.

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 $3.50/3.60

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

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: 93.59

Comments:
12/14/14: RH delivered big gains last week thanks to its earnings report. The company reported its Q3 results on December 10th, after the closing bell. Earnings came in two cents ahead of expectations. Revenues soared +22.5% from a year ago and also beat estimates. Guidance was only in-line with Wall Street estimates but the stock rallied anyway. Shares also garnered some bullish analyst comments following the earnings report. RH gapped open higher on Thursday at $$94.00 and spiked toward $100 before paring its gains.

This stock is now short-term overbought but it was encouraging to see RH maintain most of its gains on Friday in spite of the market's widespread weakness. I would still expect some profit taking after such a big move higher.

Tonight we will move the stop loss from $76.40 to $84.85.

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 $17.00/19.70

12/14/14 new stop at $84.85
12/11/14 RH gaps higher after reporting earnings the night before. 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: 84.85
Play Entered on: 11/21/14
Originally listed on the Watch List: 11/16/14


Raytheon Co. - RTN - close: $104.26

Comments:
12/14/14: Traders have targeted the defense stocks for profit taking in the last few days. RTN, GD, NOC, and LMT have all dropped sharply. RTN's pullback has erased over two weeks of gains. The next support level for RTN could be $102 and below that the $100 mark. I am not suggesting new positions at this time due to the severity of the decline. Let's wait and see where RTN finds support before considering new positions.

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 $ 4.30/4.75

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: 124.54

Comments:
12/14/14: The Japanese yen managed an oversold bounce last week. This may have contributed to the pullback in shares of TM. I warned readers last week that TM was overbought. I am suggesting a dip near $122.00 as a new entry point to buy calls although investors may want to wait for the dip and then buy calls on a bounce instead.

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 $ 6.60/8.35

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

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: 68.83

Comments:
12/14/14: Shares of UA only lost 60 cents for the week. However, I am still urging caution. UA has a short-term trend of lower highs as traders sell into strength. Tonight I am raising our stop loss to $65.85.

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 $ 6.00/6.50

12/14/14 new stop at $65.85
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: 65.85
Play Entered on: 11/20/14
Originally listed on the Watch List: 11/16/14



Watch

Semiconductor Equipment & Retail

by James Brown

Click here to email James Brown


New Watch List Entries

ASML - ASML Corp.

WMT - Wal-Mart Stores


Active Watch List Candidates

AET - Aetna Inc

SBUX - Starbucks

IP - International Paper


Dropped Watch List Entries

AAPL and GS have graduated to our active play list.



New Watch List Candidates:

ASML Holding - ASML - close: 106.02

Company Info

ASML is part of the technology sector. They make equipment the makes semiconductors. The company describes itself as, "ASML makes possible affordable microelectronics that improve the quality of life. ASML invents and develops complex technology for high-tech lithography machines for the semiconductor industry. ASML's guiding principle is continuing Moore's Law towards ever smaller, cheaper, more powerful and energy-efficient semiconductors. Our success is based on three pillars: technology leadership combined with customer and supplier intimacy, highly efficient processes and entrepreneurial people. We are a multinational company with over 70 locations in 16 countries, headquartered in Veldhoven, the Netherlands."

Moore's has been driving the semiconductor industry for decades and continues to fuel smaller and more complex systems. After a sideways year for the big semi equipment makers like ASML analysts are expecting 2015 to see improvement. They believe the new lithography systems will be in demand.

The company's most recent earnings report was October 15th. ASML missed the bottom line estimate by a penny but they guided higher. Q3 sales were €1.32 billion with a gross margin of 43.7%. ASML is forecasting Q4 sales of €1.3 billion with a gross margin of 43%.

ASML management held an investor day on November 24th. They outlined their plans to bump sales from €5.6 billion in 2014 to €10 billion and triple earnings by 2020.

Technically the stock has broken out to all-time highs in early December. The point & figure chart is bullish and forecasting a long-term target of $147.00.

If this market pullback continues we want to be ready to buy ASML on weakness. The $100-101 area should be support. Tonight I'm suggesting a buy-the-dip trigger at $101.50.

Buy-the-dip Trigger @ $101.50, use a stop loss at $94.75.

BUY the 2016 Jan $110 call (ASML160115c110) current ask $11.20

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

Chart of ASML:

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


Wal-Mart Stores Inc. - WMT - close: 83.81

Company Info

WMT is the titan of retail. They are the biggest on the planet with 11,000 stores in 27 countries. Their three main segments are Walmart U.S., Walmart International, and Sam's Club (a Costco rival warehouse club).

The stock has been stuck in a $72-80 trading range for most of the last 18 months. That changed with the November breakout past resistance at $80.00. The company reported earnings on November 13th. Earnings were $1.15 a share, which was three cents above expectations. Revenues were up +2.8% and beat Wall Street estimates at $118.08 billion for the quarter. WMT said their same-store sales were up +0.5% in the third quarter, which is the first positive reading in seven quarters. Guidance was mostly inline with estimates although WMT said they expect comparable store sales to be flat to positive in the fourth quarter.

Retail-related stocks initially struggled following Black Friday as initial reports showed consumer traffic and spending came in below estimates. That was due to the changing nature of the retail experience. Instead of standing in line in the cold for door buster deals as in years past this year consumer shopped online and on their mobile phone. Wal-Mart said their online sales during the Black Friday weekend hit a record. Plus, retailers have extended their Black Friday deals form one-day to several days.

The National Retail Federation (NRF) recently issued a press release following the U.S. government's November retail sales number, which was up +0.6% over October and up +3.2% from November 2013. NRF reiterated their forecast for a strong +4.1% growth in consumer spending during the holidays this year.

We like Wal-Mart because it stands to benefit from the crash in crude oil prices. A large chunk of WMT's shoppers are low to middle income citizens. They are more affected by gasoline prices. The sharp drop in gas at the pump leaves a lot more money in their pocket which they will spend on other things. WMT will be a direct beneficiary from this extra cash that consumers have to spend.

Technically shares have started to correct from all-time highs near $88 set in late November. The point & figure chart is bullish and forecasting a long-term target of $98.00. Broken resistance in the $80-81 should be new support. Tonight I am suggesting a buy-the-dip trigger to buy calls when WMT hits $81.50.

Buy-the-dip Trigger @ $81.50, use a stop loss at $77.40.

BUY the 2016 Jan $85 call (WMT160115c85) current ask $4.70

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

Chart of WMT:

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


Active Watch List Candidates:



Aetna Inc. - AET - close: 87.30

Comments:
12/14/14: We were expecting AET to dip and shares did not disappoint. However, our trade is not open yet. Last week I suggested we buy a dip at $86.00. Tonight I am moving that trigger down to $84.25. Why the adjustment? Last week AET provided guidance for 2015 and their forecast was below Wall Street's consensus. The stock held up relatively well in spite of this news and a weak market environment. Some analysts have suggested that AET is just being a little too cautious and will actually do better than expected.

Considering last week's news, shares could be a little bit weaker than we initially estimated so we are moving the trigger lower. Tonight we'll move the entry trigger to $84.25 but leave the stop loss unchanged at $79.00.

Earlier Comments: December 7, 2014:
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 @ 84.25, stop loss @ 79.00

BUY the 2016 Jan. $90 call (AET160115c90)

12/14/14 adjust the buy-the-dip trigger from $86.00 to $84.25. Option Format: symbol-year-month-day-call-strike

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


International Paper - IP - close: $53.15

Comments:
12/14/14: IP's strength has faded. The stock is down three days in a row. We've been waiting for a pullback so this is good news. Our entry strategy has not changed. Wait for a dip to $51.00.

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


Starbucks - SBUX - close: 83.25

Comments:
12/14/14: We added SBUX to the watch list last week. Shares weathered the market's storm last week pretty well and remains near all-time highs. I don't see any changes from my prior comments. We are suggesting investors buy calls on a dip at $82.00 but you may want to cross your fingers and hope for a dip to $80.00 instead.

Earlier Comments: December 7, 2014:
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)

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

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