Option Investor
Newsletter

Daily Newsletter, Sunday, 12/21/2014

Table of Contents

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

Leaps Trader Commentary

Twas The Fed Meeting Before Christmas

by James Brown

Click here to email James Brown

Federal Reserve Chairman Janet Yellen decided to play the role of Santa Claus and gave the stock market a huge gift on Wednesday. Before the FOMC meeting the S&P 500 had fallen more than 100 points and was off more than -4% from its highs before rocketing higher on the Fed's comments. As many expected the Fed did change their "considerable period" language but replaced it with an equally dovish "patient" comment. Investors believe the Fed will not rush to raise rates and stocks surged higher.

The Dow Industrials had the biggest point moves after falling more than -900 points in the prior seven days and then rebound +740 points in the last three sessions. The S&P 500 index bounce on Wednesday and Thursday was the biggest two-day gain since March 2009. The Wednesday-Friday rally is the biggest three-day gain since 2011. Crude oil remained in focus and last week WTI crude traded below $55 a barrel but Friday saw a big bounce (+6.7%) and closed at $57.77 a barrel. Brent crude ended the week near $62. Oil stocks saw some pretty big bounces. The oil index was up +10.1% while the OSX oil services index added +10.9%. Janet Yellen did comment on oil but said the weakness was temporary.

There was also some speculation that the sell-off in oil might be over soon as crude looked like it was finding support. After a nearly -50% drop from its summer 2014 highs oil is very oversold. Technically it's due for a bounce. You can see on the intraday chart below that oil prices may have formed a bullish double bottom but this might only set up for a short-term bounce (counter-trend rally) before turning lower again. More on oil in a bit.

Weekly Chart of the USO oil ETF

Intraday Chart of the USO oil ETF

Economic Data

U.S. economic data was mixed. Housing starts dipped -1.6% in November to an annual pace of 1.028 million. Building permits saw a bigger decline of -5.2% to a pace of 1.035 million. Meanwhile the NAHB housing market index (HMI) inched lower from 58 to 58 (on a scale of 0 to 100). You can learn more about the HMI here: What is the NAHB housing market index.

The government said U.S. industrial production came in significantly better than expected with a +1.3% gain. This is the biggest one-month jump since a +1.6% surge back in May 2010. Meanwhile U.S. manufacturing rose +1.1% and finally rallied past its pre-recession peak. There was also good news with the capacity utilization numbers rising to 80.1 in November, up from 79.3 in October. That's the first time utilization has been above 80% since 2008.

The regional Fed surveys were mostly disappointing. The New York Empire State manufacturing survey dropped from November's 10.2 to -3.6 in December. Economists were expecting a rise to 12. The Philadelphia Fed also came in worse than expected. The consensus was that last month's reading above 40 was unsustainable and analysts expected a drop to 26 but the Philly Fed survey fell to 24.5. Meanwhile the Kansas Fed manufacturing survey continued to inch higher with an improvement from 7 to 8 in December. This marks the 12th month in growth territory in a row.

The big drop in oil prices is putting downward pressure on inflation. The Consumer Price Index (CPI) fell -0.3% in November after being flat in October. This drop was all thanks to lower energy prices, which plunged -3.8% in November. Excluding the volatile food and energy components the core-CPI actually rose +0.1%, which was in-line with expectations.

Overseas Economic Data

There were a lot of headlines overseas. Germany's Ifo business climate survey improved from 104.7 to 105.5. The United Kingdom's retail sales came in way above estimates with a jump from +1.0% to +1.6%. Analysts were only expecting +0.3% growth. France said their manufacturing PMI slipped from 48.4 to 47.9. Numbers below 50.0 suggest economic contraction. The Fitch rating agency downgraded France's sovereign rating from AA+ to AA.

Switzerland was making headlines with their decision to impose a -0.25% negative interest rate on bank deposits. There has been a flood of money into the Swiss banking system and they're trying to stem the tide. The plan was to lower the three-month LIBOR rate below zero and it is working. On Friday their 3-month LIBOR rate was at -0.046 percent. It was the first time Switzerland has used negative deposit rates since the 1970s. Swiss National Bank President Thomas Jordan noted that weakness in Russia and the Russia currency was a significant challenge and one of the reasons for their decision.

The Russian economy is crashing. The combination of economic sanctions from Europe and the U.S. combined with plunging crude oil prices is killing their economy and their currency. Right now estimates suggest the Russian economy could contract -5% in 2015. The ruble has been in freefall and Russia's central bank tried to stop the slide with a surprise interest rate hike Monday night from 10.5% to 17.0%. That's an incredible jump of 650 basis points. Unfortunately the hike only produced a temporary bounce in the ruble. As of Friday the Russian ruble had fallen to 72.7 against the euro and 59.5 against the U.S. dollar.

The parade of headlines didn't stop with Europe. Last week there were some disappointing numbers out of China. There was some talk from the central bank of China suggesting China's growth could drop to +7.0% early last week. The most recent data on their residential market showed home prices falling another -3.7% year over year. They saw declines in all 70 cities surveyed. This is the seventh month in a row that home prices have dropped. Another disappointment was the latest China HSBC manufacturing PMI reading, which slipped to 49.5. Numbers under 50.0 suggest economic contraction. The combination of falling home prices and slowing PMI data suggested the People's Bank of China might announce even more stimulus to boost their economy. Then again they might not. Every four years China does a detailed census of their economy. The latest numbers came out last week and they revised their economic numbers to show their economy is $308 billion bigger than previously estimated. This could adjust their 2013 GDP by an additional +3-to-4% and suggest their 2014 GDP numbers could also be revised higher. (FYI: If you missed it, earlier this month China surpassed the U.S. as the biggest economy on the planet).

Headlines out of Japan were relatively quiet. The big news was the prior weekend's election. As expected Prime Minister Shinzo Abe's LDP coalition did win the supermajority they needed but voter turnout was extremely low. It does mean that Abe's current path of extreme stimulus will likely continue. Meanwhile Japan said their manufacturing PMI inched higher from 52.0 to 52.1. The Bank of Japan upgraded their outlook on industrial output, exports, and housing.




Major Indices:

The big cap S&P 500 index soared from Tuesday's low near 1,972 to a high of almost 2,078 on Friday. That's a +5.3% bounce and put its gain for the week at +3.4%. Year to date the S&P 500 is up +12.0%. The index has gone from short-term oversold to short-term overbought and hovering just below resistance at its all-time highs in the 2,080 area.

If the S&P 500 can breakout then the next resistance level is probably round-number, psychological resistance at the 2,100 mark.

chart of the S&P 500 index:

The NASDAQ composite also produced a +5% bounce from last week's intraday low to Friday's intraday high. You can see on the daily chart below the NASDAQ was respecting some of the technical levels with a bounce near the 38.2% Fibonacci retracement (also near its simple 100-dma that is not displayed).

The 4,800 area remains overhead resistance. A breakout there probably signals a run toward 4,900 and soon investors will be focused on the 5,000 mark. What are the odds that we see the NASDAQ trading above 5,000 by March 2015? It was March 2000 when the NASDAQ peaked at 5,132.

Last week's gain of +2.4% puts the NASDAQ's 2014 gain at +14.1%.

chart of the NASDAQ Composite index:

The small cap Russell 2000 delivered the strongest performance among the major U.S. indices. After breaking down below support in the 1,140 area and under its 50-dma and 200-dma, this index reversed sharply with a rebound from 1,134 to almost 1,200 by the Friday afternoon high. That was a +5.7% bounce and the $RUT ended the week with a +3.77% advance.

More importantly the $RUT has broken through resistance in the 1,190 area. It's possible that 1,200 is round-number resistance but I suspect that last week's breakout sets up for a run toward the $RUT's all-time highs in the 1,212 area. Year to date the $RUT is now up +2.7%.

chart of the Russell 2000 index



Economic Data & Event Calendar

There is only one significant report on the calendar this week. That is the U.S. Q3 GDP revision. Economists are estimating that the numbers could be revised lower from +3.9% growth down to +3.3% growth. However, there are some whisper numbers out there suggesting Q3 GDP could actually be revised higher, above +4% growth.

The U.S. markets will close early on December 24th at 1:00 p.m. and will be closed all day on the 25th for the Christmas holiday.

Economic and Event Calendar

- Monday, December 22 -
Existing Home Sales

- Tuesday, December 23 -
New Home Sales
Durable Goods Orders
Q3 GDP estimate
University of Michigan Consumer Sentiment
Personal Income & Spending

- Wednesday, December 24 -
Weekly initial jobless claims
U.S. markets close early (Christmas Eve)

- Thursday, December 25 -
U.S. markets are closed for Christmas

- Friday, December 19 -
(nothing significant)

Additional Events to be aware of:

Jan 1, 2015 (Thursday) - Market's closed for New Year's Day

Looking Ahead:

As we look ahead at the last week and a half of 2014 the seasonal trend is up. The stock market's big bounce has rejuvenated investor sentiment. Two weeks ago everyone was pretty gloomy with the sharp sell-off in stocks but now we're back to testing record highs on the big cap indices.

Traditionally the last several days of the year and the first couple of trading days in January is bullish. This has been affectionately called the Santa Claus rally. Over the last 64 years the S&P 500 has averaged a gain of +1.5% during this time period. One has to wonder if Santa came early this year with the huge gains over the last three days.

As we get closer to January we are going to hear more discussion of the "January effect" where small caps are expected to outperform the rest of the market. Over the last 90 years or so small caps have tended to outperform big caps in January. There has been some speculation that maybe this is a trading phenomenon where investors sell their small cap losers in December for tax purposes and then buy them back in January. We also have the impact of workers putting some of their Christmas and yearend bonus money into their stock portfolio. This gives fund managers a big influx of money to invest in January.

Trading volume in the market should decline significantly with only six and a half trading days left in 2014. It's common for Wall Street trading desks to wrap up all of their significant activity this past week and shut down for the holidays. The lack of volume could generate more volatility.

Investors will still be watching crude oil. Dennis Gartman, an influential trader and editor of "The Gartman Letter" believes that oil's slide is not over yet. Gartman isn't giving any price targets on how low oil will go. He is pointing at the history of crude oil and how oil has fallen -90% from its peaks multiple times. Essentially Dennis is suggesting oil is going to fall a lot farther than people expect.

It seems that Russian President Vladmir Putin agrees with Gartman. This past week Putin warned his country that crude oil could fall to $40 a barrel before bottoming. That's bad news for a country whose biggest export is oil and natural gas.

Summing things up the seasonal trend for equities over the next several days is bullish. Low volume could generate more volatility but at the same time we could see movement stall with most investors focused on their holidays instead.

I've been writing this LEAPS newsletter for about six years (the actual anniversary will be March 2015). I want to say thank you to all the readers out there that make this newsletter possible.

Merry Christmas!

~ James


Enjoy "Twas the Night Before Christmas" poem: (4 minute youtube video)





Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The U.S. stock market rallied on the dovish FOMC statement. The big cap indices produced their best two-day and three-day performance in years.

Watch list candidate SBUX graduated to our active play list last week.

I have updated the stop losses on CHKP

Our plan was to close the FDX trade on Monday, Dec. 15th. Meanwhile the 2015 option position on CHKP was stopped out.

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

Full Of Holiday Cheer

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(December 21, 2014)

It's amazing how the market can change in a week. Two weeks ago the market mood was sour after the S&P 500 delivered its worst performance in two years. Now investors are cheerful again with the best three-day rally in years.

We have a dovish Federal Reserve to thank for the market's rally. Janet Yellen's comments about being patient when it comes to raising rates waved the all clear signal for market bulls. Equities sprinted back toward their recent highs.

Seasonally the trend for the next couple of weeks is traditionally bullish but volume will fade as investors focus on the holidays instead of stocks.

I'm not adding any new trades tonight. We saw Starbucks (SBUX) graduate from our watch list to our play list last week. Tonight I'm adding CSCO, FB, and FOXA as new watch list candidates.

Below is an updated list of what's on my radar screen.

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:

WDC, ENDP, LLY, CL, IR, SFM, NOC, ESRX, MSFT, PANW, HCA



Play Updates

Happy To Avoid Earnings Volatility

by James Brown

Click here to email James Brown

Editor's Note:

Closing our FDX trade before the company reported earnings was a smart move.

Overall it was a pretty good week with the big three-day bounce following the FOMC meeting.


Closed Plays


We exited our FDX trade on Monday, December 15th. Plus, our 2015 call trade on CHKP was stopped out.



Play Updates


Apple Inc. - AAPL - close: 111.78

Comments:
12/21/14: AAPL's rebound lifted shares back above the $110 level and its 50-dma again. The recent pullback looks like a bull-flag correction but AAPL needs to confirm move with a bullish breakout past the three-week trend of lower highs.

If shares fall back below the $110 level again I think it's headed for $105 and its 100-dma. Otherwise a close above $114.00 could be an alternative entry point for bullish 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 $10.10/10.20

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

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: $17.62

Comments:
12/21/14: BAC delivered a strong performance last week with shares up nearly +3%. The stock bounced near its long-term trend of higher lows (and near its rising 100-dma). The stock also garnered some bullish analyst comments last week.

At this point investors may want to wait for a breakout past resistance near $18.00 before initiating positions. Keep in mind that BAC is scheduled to report earnings on January 15th and could be volatile as investors react to the results.

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 $0.78/0.80

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: 78.33

Comments:
12/21/14: The stock market's sharp sell-off from its mid December high pushed CHKP just low enough to hit our stop loss on the 2015 call play before bouncing. The stock actually ended the week near multi-year highs.

Our 2015 call trade is closed. We still have the 2016 position and I'm raising the stop loss to $72.40. I'm not suggesting new positions at this time.

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 -
(stopped out Dec. 16th, 2014 @ $75.65)
OCT 27, 2014 - entry price on CHKP @ 72.56, option @ 1.35*
symbol: CHKP150117C75 2015 JAN $75 call - exit $2.00 (+48.1%)

- or -

OCT 27, 2014 - entry price on CHKP @ 72.56, option @ 4.80*
symbol: CHKP160115C80 2016 JAN $80 call - current bid/ask $6.90/7.30
Stop loss @ 72.40 if you're trading the 2016s.

12/21/14 new stop loss for the 2016 position @ 72.40
12/16/14 2015 call position stopped out at $75.65
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: $58.25

Comments:
12/21/14: Shares of CHL dipped toward support near $56.00 and bounced. Unfortunately if Friday's performance is any clue the correction lower is not over yet. 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 $1.85/2.15

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: $92.89

Comments:
12/21/14: Shares of DIS bounced from support near $90.00 this past week. I see this rebound from $90 as a new bullish entry point.

After the disaster with Sony (SNE) and the hacking attack over The Interview movie if I was DIS I'd be reinforcing all of my cyber security. Sony did about $1.2 billion in sales at the box office in 2014. Disney was around $1.53 billion. Sony premiered 40 films in 2014 versus Disney's 16.

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 $5.60/5.85

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



The Goldman Sachs Group, Inc. - GS - close: $193.28

Comments:
12/21/14: Financial stocks produced a pretty good bounce from last week's low. GS dipped to technical support at its 100-dma near $182.50 before bouncing. It's worth noting that one Wall Street firm upped their price target on GS to $215 a share last week. After such a big three-day bounce I'm a little bit hesitant to launch new positions at current levels.

FYI: 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 $ 7.05/11.00

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

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: 146.47

Comments:
12/21/14: HUM displayed significant relative strength last week. The stock held up well during the market's sell-off and when stocks started to bounce HUM broke out to new highs. Shares did see some profit taking on Friday but broken resistance near $145.00 should offer new support.

I'm not suggesting new bullish positions at the moment.

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 $19.40/22.60

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: 34.49

Comments:
12/21/14: MU found support near its 50-dma and 100-dma last week. Shares also received some bullish analyst comments and a new $45 price target. I would be tempted to buy calls on a new close above $35.00. However, MU is scheduled to report earnings on January 6th. Investors may want to wait and see how the market reacts to MU's earnings before initiating new positions.

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 $3.65/3.75

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: 96.40

Comments:
12/21/14: RH weathered the market's recent weakness exceptionally well. When stocks started to bounce shares of RH soared to new highs. RH did see some profit taking on Friday with a -2.7% pullback. Technically Friday's session has created a bearish engulfing candlestick reversal pattern.

I am not suggesting new positions at this time.

More conservative investors will want to seriously consider raising their stop loss closer to support near $92.50.

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 $18.90/21.60

12/21/14 More conservative investors may want to raise their stop close to support near $92.50. We are leaving our stop at $84.85 for now.
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: $106.82

Comments:
12/21/14: RTN fell to six-week lows before finally bouncing near the $101 area on Wednesday. I am longer-term bullish on RTN but I would hesitate to launch new positions at this time.

After the closing bell on Friday RTN announced a big $2.4 billion contract win to supply Patriot air missile defense systems in the country of Qatar.

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 $ 5.05/5.30

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


Starbucks - SBUX - close: 79.44

Comments:
12/21/14: It has been a sour week for shares of SBUX. We were expecting a dip to $82.00 and suspected that SBUX could fall toward support near $80.00. Yet this past week has been a lot more volatile than expected. The stock hit an intraday low of $78.44 on Wednesday. When the market bounced on Thursday the rally in SBUX failed at short-term resistance near the 10-dma. That doesn't bode well. There was some speculation that the weakness in SBUX on Thursday and Friday might be a reaction to earnings news from a rival - DNKN.

On Thursday Dunkin Donuts (a.k.a. Dunkin Brands, symbol: DNKN) lowered their 2015 guidance. I don't know about you but I don't really equate DNKN in the same category as SBUX but they both due huge business in the morning as America drives to work every day. DNKN sells a lot of coffee. DNKN commented that they were seeing disappointing sales for their packaged coffee and this news could have also pressured SBUX.

The weakness in SBUX is likely temporary. Our suggested entry point to buy calls on a dip at $82.00 was hit on December 15th. At the moment I think we might get a better entry point near $78.00 and its 50-dma soon.

Many SBUX locations are open on Christmas eve and some are actually open on Christmas day. One of the most popular last minute gifts is Starbucks gift cards. This year SBUX is expecting a record number of gift cards purchased on Christmas eve - a record 1,500 gifts cards a minute. They could sell more than two million gift cards in one day.

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.

- Suggested Positions -
DEC 15, 2014 - entry price on SBUX @ 82.00, option @ 4.30
symbol:SBUX160115C90 2016 JAN $90 call - current bid/ask $ 3.15/3.30

12/15/14 triggered at $82.00
Option Format: symbol-year-month-day-call-strike

Chart

Current Target: RTN @ TBD
Current Stop loss: 74.75
Play Entered on: 12/15/14
Originally listed on the Watch List: 12/07/14


Toyota Motor Corp. - TM - close: 127.01

Comments:
12/21/14: TM delivered a strong week. The stock hit $121.06 at its low on Monday and has been up every day since. Last weekend I suggested a dip near $122 as a bullish entry point. Today I probably would not chase this $6.00 move.

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 $ 7.70/8.50

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

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: 69.09

Comments:
12/21/14: I am still cautious on our UA trade. The stock did find support near $66.50 for the second week in a row. That's good news. The stock also garnered bullish analyst coverage and a new $85 price target. Yet the rebound was cut short on Friday. We can blame that on larger rival Nike (NKE). On Friday morning NKE reported earnings that beat Wall Street estimates on both the top and bottom line. It was a bullish report. Yet the market is worried that all the crazy currency movement could hurt margins for NKE. Both NKE and UA traded lower on Friday.

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



CLOSED Plays


FedEx Corp. - FDX - close: 174.22

Comments:
12/21/14: FDX is only down about $1.50 for the week but that doesn't tell the whole story. The company reported earnings on Wednesday, December 17th and missed estimates by 8 cents. The stock collapsed and traded down to $163.57 following its quarterly results. Thankfully the market's super sharp bounce back give FDX a big lift. The rebound did fail at its 10-dma so I'm not convinced the pullback is over.

Our plan was to exit positions on Monday, Dec. 15th to avoid all the post-earnings volatility.

Long-term the story for FDX is probably still bullish but we may want to wait for a decline toward technical support at its 100-dma before considering new positions again.

- Suggested Positions -
OCT 22, 2014 - entry price on FDX @ 160.74, option @ 12.65*
symbol: FDX160115C170 2016 JAN $170 call - exit $22.35 (+76.6%)

12/15/14 planned exit on Monday morning
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

Chart

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



Watch

Old Tech, Social Media, and Entertainment

by James Brown

Click here to email James Brown



New Watch List Entries

CSCO - Cisco Systems

FB - Facebook Inc.

FOXA - Twenty First Century Fox


Active Watch List Candidates

AET - Aetna Inc

ASML - ASML Corp.

IP - International Paper

WMT - Wal-Mart Stores


Dropped Watch List Entries

SBUX has graduated to our active play list.



New Watch List Candidates:

Cisco Systems - CSCO - close: 27.77

Company Info

It seems that 2014 delivered a resurgence for old guard, big cap, technology names. CSCO is one of them and the stock has shined this year with a +23.8% gain versus the +14% gain in the NASDAQ Composite.

The company continues to struggle with strong earnings growth and management has been cautious with their guidance. It seems that investors don't care. The stock is sporting a 2.8% dividend yield. That's not bad when the 10-year U.S. bond has a yield near 2.1%.

Analysts are starting to speculate that 2015 could be a good year for earnings since 2014 was so tough (that makes for easier comparisons). The recent strength in shares of CSCO have produced a buy signal on the point & figure chart that's forecasting at $43 price target. The stock has garnered a number of bullish analyst calls since their earnings report in mid November.

The $26.00 level was key resistance for CSCO. Normally broken resistance turns into new support and the stock found support there during the market's recent pullback. Right now CSCO is poised to breakout past $28.00. Tonight I am suggesting we wait for CSCO to close above $28.15 and then buy calls the next morning with a stop loss at $25.75.

Breakout trigger: Wait for a close above $28.15
Then buy calls the next day with a stop at $25.75

BUY the 2016 Jan $30 call (CSCO160115c30) current ask $1.25

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

Chart of CSCO:

Originally listed on the Watch List: 12/21/14


Facebook, Inc. - FB - close: 79.88

Company Info

FB is the largest social media company on the planet. If the company's audience was a country their 864 million daily active users would mark them as the third most populous country on the planet behind India and China. FB has done an impressive job in monetizing all of these eyeballs. Earnings continue to growth. The company has beaten Wall Street's earnings estimates on both the top and bottom line the last four quarters in a row.

FB's most recent earnings report was October 28th. Analysts expected a profit of $0.40 a share on revenues of $3.11 billion. FB delivered a profit of $0.43 with revenues up +58.9% from a year ago to $3.2 billion. Their daily active users grew +19% to 864 million and mobile DAUs were up +39% to 703 million. Monthly active users hit 1.35 billion people.

This past week Citigroup issued a pretty bullish note on Instagram. Back in April 2012 the market was pretty skeptical when FB CEO Mark Zuckerberg decided to pay $1 billion to buy Instagram. Yet two years later Instragram has surpassed 300 million users. Citigroup now estimates the business is worth $35 billion (FB actually paid about $715 million).

Shares had hit all-time highs near $81 just before their earnings report and FB dropped on profit taking following the announcement. Since then shares have been consolidating sideways. Now it looks like that consolidation is over. The point & figure chart for FB is bullish and forecasting at $102 price target. I wouldn't be surprised to see FB challenge the $100 area by the end of next year.

Tonight I'm suggesting we wait for FB to close above $81.25 and then buy calls the next morning with a stop loss at $74.40.

Breakout trigger: Wait for a close above $81.25
Then buy calls the next day with a stop at $74.40

BUY the 2016 Jan $90 call (FB160115c90) current ask $7.00

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

Chart of FB:

Originally listed on the Watch List: 12/21/14


Twenty-First Century Fox, Inc. - FOXA - close: 38.51

Company Info

FOXA is a media giant. They're part of the services sector. According to the company's marketing material, "21st Century Fox is the world's premier portfolio of cable, broadcast, film, pay TV and satellite assets spanning six continents across the globe. Reaching more than 1.5 billion subscribers in approximately 50 local languages every day, 21st Century Fox is home to a global portfolio of cable and broadcasting networks and properties, including FOX, FX, FXX, FXM, FS1, Fox News Channel, Fox Business Network, FOX Sports, Fox Sports Network, National Geographic Channels, STAR India, 28 local television stations in the U.S. and more than 300 channels that comprise Fox International Channels; film studio Twentieth Century Fox Film; and television production studios Twentieth Century Fox Television and Shine Group. The Company also holds a 39.1% ownership interest in Sky, Europe's leading entertainment company, which serves 20 million customers across five countries."

Earnings growth has been pretty steady. FOXA has beaten Wall Street's earnings estimates on both the top and bottom line the last three quarters in a row. The most recent report was in November. Earnings per share beat estimates by three cents at $0.39. Revenues were up +11.7% from a year ago to $7.89 billion.

Technically shares of FOXA have broken out from a massive trading range over the last several months. The rally has produced a buy signal on the P&F chart pointing to a $47 target. Friday's breakout past resistance at $38.00 is a new all-time high and honestly looks like a bullish entry point right now. However, I'm crossing my fingers that FOXA will see some profit taking before yearend. Tonight I'm suggesting a buy-the-dip trigger at $37.50 with a stop loss at $35.65.

Buy-the-dip trigger at $37.65
Start with a stop loss at $35.65

BUY the 2016 Jan $40 call (FOXA160115c40) current ask $3.30

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

Chart of FOXA:

Originally listed on the Watch List: 12/21/14


Active Watch List Candidates:



Aetna Inc. - AET - close: 90.84

Comments:
12/21/14: Healthcare stocks rallied big last week. I don't want to chase AET at these levels. Tonight I'm going to leave our buy-the-dip trigger at $84.25. We will wait to see if AET can build on this rally or if it fades again.

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


ASML Holding - ASML - close: 106.84

Comments:
12/21/14: ASML managed a three-day bounce before dipping on Friday. I'm not convinced the pullback is over yet since ASML has failed to break the short-term trend of lower highs.

We will leave our buy-the-dip trigger at $101.50 for now.

Earlier Comments: December 14, 2014:
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)

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

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


International Paper - IP - close: $53.98

Comments:
12/21/14: I am suggesting patience with our IP candidate. The stock slipped to a new relative low before bouncing this past week. The $50-51 zone was major resistance and I'd much rather wait for a dip in that area before launching bullish positions.

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


Wal-Mart Stores Inc. - WMT - close: 85.16

Comments:
12/21/14: Thursday's big rally in WMT looks like a bullish breakout from the $82.50-85.00 trading range. However, shares did underperform the market on Friday so I'm unwilling to launch positions here.

Currently our suggested entry point is a dip to $81.50. If we see WMT continue to show strength this week then we'll reconsider our entry strategy.

Earlier Comments: December 14, 2014:
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)

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

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