Option Investor
Newsletter

Daily Newsletter, Sunday, 12/28/2014

Table of Contents

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

Leaps Trader Commentary

Going Out On Top!

by James Brown

Click here to email James Brown

The U.S. stock market is ringing in the holidays with new highs. It was a holiday shortened trading week with the markets closing early on December 24th and closed all day on the 25th for Christmas. That didn't stop the rally with the Dow Industrials, the S&P 500, and even the small cap Russell 2000 closing the week at all-time highs. An oversold bounce in biotech stocks on Friday helped push the NASDAQ composite to a new 14-year high.

Biotech stocks did post a loss for the week but the group is still up +49.5% in 2014. The SOX semiconductor index boosted its 2014 gains to +30% while the Dow Jones Transportation Average rallied +2.3% for the week and raising its year to date gain to +24%. Crude oil continued to sink. Oil lost another -3% and posted its fifth weekly decline in a row. The commodity is off more than 40% for the year, the biggest decline since 2008. Crude oil is down about -50% from its 2014 highs.

2014 has been a great year for the stock market and volatility has been relatively mild. According to CNBC the S&P 500 has not had a four-day losing streak the entire year. Surprisingly, in spite of the bullish market performance, it has not been a good year for fund managers. Lipper, a research firm that analyzes mutual funds, said that normally 66% of fund managers do not beat their benchmarks. Yet this year 85% of all active managed funds have failed to beat their benchmarks. 2014 is poised to be the worst year for fund managers in 30 years.

Economic Data

It was a relatively quiet week for U.S. economic data. The final December reading from the University of Michigan Consumer Sentiment survey inched down from 93.8 to 93.6. This is still the highest reading since January 2007. The latest Durable Goods Orders number fell -0.7% in November after October's reading was revising down from +0.4% to +0.3%. Meanwhile new home sales hit an annualized pace of 438,000 in November. October's number was revised down from 458K to 445K.

The biggest economic report of the week was the U.S. Q3 GDP estimate. Many were surprised when the first estimate was +3.9% growth. Yet this last week that number surprised again after it was revised up to +5.0%. That's the highest U.S. quarterly GDP growth in over a decade. The closest comparable quarter was Q3 2003 when the U.S. grew +6.9%.

Overseas Economic Data

Economic data overseas was pretty quiet. European markets were closed on Friday for Boxing Day. Japan said their household spending improved +0.4% last month. Japan's unemployment rate was unchanged at 3.5%. In China the country's banking commission said there was an increase in non-performing loans. Yet that didn't stop the rally in Chinese stocks. The main Shanghai Composite has been soaring with the index up more than +20% in the last few weeks. There is growing speculation that the People's Bank of China (central bank) will provide more stimulus measures soon.




Major Indices:

The big cap S&P 500 index managed a +0.88% gain for the week. That puts the 2014 gain at +13%. Momentum did slow down a bit last week and the S&P 500 looks short-term overbought given the super sharp rebound from its mid December lows. I suspect the 2,100 level is round-number, psychological resistance. Should stocks see a pullback I'd watch for support near the 2,050 level.

chart of the S&P 500 index:

The NASDAQ's +0.8% gain last week has boosted its 2014 gains to +15%. It's not surprising to see the rally stall at resistance near the November peak and round-number resistance at 4,800. If the NASDAQ reverses here it will look like a potential bearish double top. Should the NASDAQ breakout higher then we'll start hearing market pundits talk about NASDAQ 5,000 in 2015.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index was playing catch up last week. The $RUT sprinted higher with a +1.6% gain. The index managed to breakout past significant resistance at its 2014 highs around 1,212. That means the $RUT just closed at a new all-time high. It does look short-term overbought here. Bullish investors should be encouraged by the inverse head-and-shoulders pattern. This pattern would suggest a target of 1,340 for the $RUT.

chart of the Russell 2000 index



Economic Data & Event Calendar

It's another quiet week for economic data. The U.S. will get another regional fed survey (Dallas), another consumer confidence survey, and then the ISM report on Friday. Overseas we'll see retail sales from Germany, China's manufacturing PMI, and Eurozone PMI. The U.S. market will be closed again on January 1st for New Year's Day.

Economic and Event Calendar

- Monday, December 29 -
Dallas Fed survey
Germany's retail sales

- Tuesday, December 30 -
Case-Shiller 20-city home price index
Consumer Confidence survey
China manufacturing PMI data

- Wednesday, December 31 -
New Year's Eve
Pending Home Sales
Weekly initial jobless claims
Chicago PMI data

- Thursday, January 01 -
Markets closed for New Year's Day

- Friday, January 02 -
ISM Index
Construction Spending
Eurozone PMI data

Looking Ahead:

Today economists and stock market analysts are optimistic as we head into 2015. The U.S. economy appears to have finally shrugged off its persistent slow growth affliction. Consumer confidence is strong. Consumer spending is improving. Vehicle sales have been very healthy in 2014. Retail sales for the holiday will likely beat last year and the long-term averages. A lot of this improvement is likely due to the drop in oil prices.

According to AAA the price of gasoline inside the U.S. has fallen a record-breaking 92 days in a row. The national average is now $2.32 and some states are seeing prices below $2.00 a gallon. This is a huge boost for the consumers. That's good news since consumer spending accounts for nearly 70% of the U.S. economy.

Crude oil is likely to stay low in 2015. Ali al-Naimi, the oil minister of Saudi Arabia, was interviewed by CNN last week. He shot down any rumors that the Saudi's were colluding with the U.S. to bring oil prices down and hurt Russia. He also said that Saudi Arabia was not going to cut production and that they will never cut production. That's really bad news for other oil producers. There seems to be a growing camp of analysts predicting oil could drop toward $40 a barrel (or lower).

January is normally a bullish month for stocks. A Bank of America analyst said January is the second best month of the year. Since 1929 the month has produced gains 64% of the time. Januarys that follow a year where the S&P 500 delivered double-digit gains has an even higher chance of being positive.

Looking ahead into 2015 there are some seasonal factors at work that should be bullish for stocks. The researchers with the Stock Trader's Almanac have noted that pre-presidential election years (that's 2015 for us) are the best year of the four-year presidential cycle. They also point out that the fifth year of the decade, essentially any year that ends in a "5" has a strong history of gains. According to their research, in the last 130 years, only one time did the fifth year of the decade not produce gains. You could argue that 13 times is not a very big sample of data to rely on but it makes for interesting market factoids.

We have three trading days left in 2014. Volume will remain light this week. That could boost volatility with fewer buyers and sellers to even out moves in individual stocks. Historically the trend is higher. We're right in the middle of when stocks should see their Santa Claus rally.

I hope everyone had a wonderful 2014. We are looking forward to a great 2015.

Happy New Year!

~ James







Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The path of least resistance is still higher. Seasonal trends remain in effect.

Watch list candidates CSCO and FB graduated to our active play list last week.

We want to exit our UA trade on Monday morning, December 29th.

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

Santa Claus Rally In Progress

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(December 28, 2014)

I am not adding any new trades tonight.

Last week we saw both CSCO and FB graduate from our watch list to our active play list. Tonight I'm adding AAL and LVLT to the watch list.

Volume this week should be pretty light. Most investors are still on vacation and the market will be closed on Thursday for New Year's Day.

We are right in the middle of when the traditional Santa Claus rally shows up and that should carry stocks higher through the first two or three trading days of January.

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:

HCA, TIF, CL, GLW, TGT, WAG, MSFT, SNDK, STZ, INTC, AMBA, HPQ,



Play Updates

The December Rebound Continues

by James Brown

Click here to email James Brown

Editor's Note:

We added CSCO and FB from our watch list to our active play list below.

Tonight I am suggesting we exit our UA trade immediately (Monday morning, December 29th).


Closed Plays



None. No closed plays this week.




Play Updates


Apple Inc. - AAPL - close: 113.99

Comments:
12/28/14: AAPL ended the holiday week with a gain thanks to the big +1.76% bounce on Friday. The stock has been consolidating sideway the last few days but that changed on Friday. The stock looks poised to make a run towards its all-time high near $120 from late November.

If you think the market is going to correct in January then consider waiting for AAPL to dip toward the $105 area and its rising 100-dma as your bullish entry point to buy calls on AAPL. If you are not expecting the market to dip any time soon then a rally past $115.00 could be used as an alternative entry point.

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 $10.65/10.70

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: $17.98

Comments:
12/28/14: Financial stocks continued to rise last week. BAC rallied toward resistance near $18.00 and closed there. These are multi-year highs for the stock. Wednesday's intraday high was $18.10. I would use a close above $18.10 as a new bullish entry point to buy calls on BAC. However, more conservative investors will want to strongly consider waiting until after BAC reports earnings on January 15th before initiating new positions. BAC could be volatile as traders react to the earnings report.

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 $0.81/0.83

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: 80.06

Comments:
12/28/14: The Sony hacking scandal has put cyber security stocks back in focus. Shares of CHKP are up two weeks in a row and closed at new multi-year highs.

I'm not suggesting new positions at this time. The $80 level is potential round-number resistance.

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 $7.70/8.10
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: $59.52

Comments:
12/28/14: The bounce in CHL continued last week and shares are up two weeks in a row. However, a quick glance at the daily chart and you'll notice that CHL is having trouble with resistance in the $60.00-61.00 area. This is an area that just happens to have a number of moving averages in it (like the 30, 40, 50, and 100-dma).

I am a little concerned that a reversal lower here could be a new lower high and cast a bearish shadow over the consolidation in CHL over the last few months. 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 $1.85/2.10

12/28/14 Caution! CHL is struggling with resistance near $60.
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


Cisco Systems - CSCO - close: 28.35

Comments:
12/28/14: CSCO is a brand new watch list candidate that has already graduated to our active play list. The plan was to wait for shares to close above $28.15 and then buy calls the next day. CSCO broke through resistance at $28.00 and closed at $28.22 on December 22nd. Our trade opened the next morning at $28.22.

I would still consider new positions now. However, nimble traders may want to wait. The intraday chart on CSCO is suggesting the stock could see a brief pullback. You might get a better entry point near $27.50 soon.

Earlier Comments: December 21, 2014:
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.

- Suggested Positions -
DEC 23, 2014 - entry price on CSCO @ 28.22, option @ 1.40
symbol: CSCO160115C30 2016 JAN $30 call - current bid/ask $1.40/1.45

12/23/14 Our trade begins. CSCO opens at $28.22
12/22/14 CSCO closed at $28.22, above our trigger of $28.15
Option Format: symbol-year-month-day-call-strike

Chart of CSCO:

Current Target: To Be Determined
Current Stop loss: 25.75
Play Entered on: 12/23/14
Originally listed on the Watch List: 12/21/14


The Walt Disney Company - DIS - close: $95.03

Comments:
12/28/14: DIS continues to show strength and the stock rallied to a new all-time high. Shares are currently testing potential round-number resistance near the $95.00 level. I suspect the real level to watch is the $100.00 mark, which could be tougher psychological resistance to breakthrough.

I am not suggesting new positions at this time.

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 $6.15/6.45

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


Facebook, Inc. - FB - close: 80.78

Comments:
12/28/14: FB is another new watch list candidate that graduated to our active play list this past week. The plan was to wait for shares to close above $81.25 and then buy calls the next morning. FB closed at $81.45 on December 22nd. Our trade began the next morning at $82.02. I would still consider new positions now at current levels but more conservative investors may want to wait for a close above $82.00 instead since the $82 mark appears to be short-term resistance.

Earlier Comments: December 21, 2014:
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.

- Suggested Positions -
DEC 23, 2014 - entry price on FB @ 82.02, option @ 7.55
symbol: FB160115C90 2016 JAN $90 call - current bid/ask $6.95/7.15

12/23/14 trade begins. FB opens at $82.02
12/22/14 FB closed at $81.45, above our trigger at $81.25
Option Format: symbol-year-month-day-call-strike

Chart of FB:

Current Target: FB @ TBD
Current Stop loss: 74.40
Play Entered on: 12/23/14

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



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

Comments:
12/28/14: The rebound in shares of GS continued with the stock up two weeks I a row. Shares are seeing momentum fade a bit as they near their mid December high around $198.00. I suspect the $198-200 area could be overhead resistance. Meanwhile the $189-192 area should be short-term support.

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 $ 9.45/11.40

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: 145.07

Comments:
12/28/14: HUM spent last week slowly retreating from its December 19th high. The essentially consolidated in the $144-146 range the last few days. If this pullback continues the $140.00 level should be decent 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 $17.40/20.00

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: 35.00

Comments:
12/28/14: Semiconductor stocks continued to rise last week. Yet the rebound in MU stalled with shares drifting sideways near round-number resistance at $35.00. The company is supposed 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: 96.00

Comments:
12/28/14: RH only lost 40 cents for the week but that was enough to snap a three-week winning streak. The good news is that RH did not see any follow through on its December 19th bearish reversal pattern - at least not yet. Volume was super low as RH consolidated sideways the last few days.

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 $17.40/21.00

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: $110.08

Comments:
12/28/14: RTN produced big gains last week but most of that was all from Monday's rally (December 22nd) when the company announced they had won a $2.4 billion deal to supply Patriot Air and Missile Defense Systems to the State of Qatar. RTN spent the rest of the holiday week consolidating sideways in a narrow range.

More conservative investors may want to start raising their stop loss. I am not suggesting new positions at this time.

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 $ 6.15/6.45

12/22/14 RTN rallied big on news of a $2.4 billion deal with Qatar
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: 81.83

Comments:
12/28/14: SBUX garnered some bullish analyst comments last week. That helped the stock bounce after the prior week's sell-off. At the moment I'd like to see a little bit more follow through before initiating new positions. A close above $82.50 would suffice.

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 $ 3.70/3.80

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

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: 128.10

Comments:
12/28/14: TM spent most of the holiday week consolidating sideways. A rally on Friday helped shares post a gain for the week. The stock looks poised to challenge its early December highs near $129.25 soon.

I am not suggesting new positions at this time.

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

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

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

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

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

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

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

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

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

- Suggested Positions -
DEC 02, 2014 - entry price on TM @ 126.56, option @ 8.75
symbol: TM160115C130 2016 JAN $130 call - current bid/ask $ 8.25/8.95

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: 68.09

Comments:
12/28/14: Shares of UA continue to look vulnerable. The stock is up big this year with a +56% gain in 2014. Yet the last few weeks is showing what looks like investor indecision.

I am long-term bullish on UA. However, tonight I am suggesting we exit this trade immediately (Monday morning, December 29th). We can revisit UA if shares close above resistance near $73.00 or find support near their simple 200-dma (currently near $62.50).

- Suggested Positions -
NOV 20, 2014 - entry price on UA @ 70.20, option @ 6.95
symbol: UA160115C80 2016 JAN $80 call - current bid/ask $ 5.20/5.90

12/28/14 prepare to exit immediately on Monday, December 29th
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

Airlines & Communications

by James Brown

Click here to email James Brown


New Watch List Entries

AAL - American Airlines Group

LVLT - Level 3 Communications


Active Watch List Candidates

AET - Aetna Inc

ASML - ASML Corp.

FOXA - Twenty First Century Fox

WMT - Wal-Mart Stores


Dropped Watch List Entries

CSCO and FB have both graduated to our active play list.

IP has been removed.



New Watch List Candidates:

American Airlines Group - AAL - close: 51.96

Company Info

It is no secret that plunging oil prices mean lower fuel cost for the transportation companies. Falling fuel prices make a big different for the airliners since more than 25% of their expenses are fuel. AAL is a major U.S. airline with 6,700 flights a day to almost 340 destinations in 54 countries.

2014's collapse in oil prices have fueled big gains for the airline stocks. Crude oil is down about -50% from its 2014 high. Meanwhile AAL is up +105% in 2014 and trading at multi-year highs. The International Air Transport Association (IATA) said 2014 was a good year for the airline industry. They estimate that globally airlines will bring in a net profit of $19.9 billion. They're forecasting that number to soar to $25 billion in 2015.

Morgan Stanley noted that AAL should benefit the most from lower fuel prices because they don't hedge their fuel costs. Right now analysts are expecting oil to stay depressed for quite some time. That could set the foundation for a banner yet for AAL in 2015.

Shares of AAL are currently hovering just below resistance in the $52.00 area. I am suggesting we wait for AAL to close above $52.50 and then buy calls the next morning with a stop loss at $44.75. The point & figure chart is bullish and forecasting at $63 target. Coincidently AAL's all-time high is near $63 set back in 2006. I'm not setting a target tonight.

Breakout trigger: Wait for a close above $52.50,
Then buy calls the next day with a stop at $44.75

BUY the 2016 Jan $60 call (AAL160115c60) current ask $5.90

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

Chart of AAL:

Originally listed on the Watch List: 12/28/14


Level 3 Communications - LVLT - close: 49.75

Company Info

LVLT is a communication services company. Their marketing material describes LVLT as "Level 3 Communications, Inc. is a Fortune 500 company that provides local, national and global communications services to enterprise, government and carrier customers. Level 3's comprehensive portfolio of secure, managed solutions includes fiber and infrastructure solutions; IP-based voice and data communications; wide-area Ethernet services; video and content distribution; data center and cloud-based solutions. Level 3 serves customers in more than 500 markets in over 60 countries over a global services platform anchored by owned fiber networks on three continents and connected by extensive undersea facilities."

They just recently completed a merger with TW Telecom. Earnings have been improving. LVLT has beaten Wall Street's earnings estimates the last three quarters in a row. Technically shares have been outperforming the broader market. The NASDAQ composite is up +15% in 2014 while LVLT is up +50%. The point & figure chart is bullish and forecasting a long-term target at $75.00.

Currently shares of LVLT are hovering just below key resistance at the $50.00 mark. I am suggesting we wait for LVLT to close above $50.50 and then buy calls the next morning with a stop loss at $45.45.

Breakout trigger: Wait for a close above $50.50,
Then buy calls the next day with a stop at $45.45

BUY the 2016 Jan $55 call (LVLT160115c55) current ask $5.50

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

Chart of LVLT:

Originally listed on the Watch List: 12/28/14


Active Watch List Candidates:



Aetna Inc. - AET - close: 90.84

Comments:
12/28/14: It looks like AET might be pulling back from its recent highs. Tonight we will raise the entry trigger to $86.00. So the plan is to buy calls on a dip at $86.00 but we will also raise the stop loss to $83.45. The key level to watch is support near $85.00.

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 @ 86.00, stop loss @ 83.45

BUY the 2016 Jan. $90 call (AET160115c90)

12/28/14 adjust the buy-the-dip trigger to $86.00 and raise the stop loss to $83.45
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: 109.30

Comments:
12/28/14: Semiconductor stocks have been showing relative strength and ASML rallied toward its recent highs. Shares are currently hovering just below round-number resistance at $110.00.

Tonight we will adjust our entry point strategy. Instead of waiting for a dip to $101, which may not happen, we will look for a breakout higher. Wait for ASML to close above $110.25 and then buy calls the next morning. We will move the stop loss to $99.65 and move the option strike price to the 2016 January $120 call.

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.

Breakout Trigger: Wait for a close above $110.25,
Then buy calls the next morning with a stop at $99.65

BUY the 2016 Jan $120 call (ASML160115c120) current ask $8.30

12/28/14 Strategy update: Instead of a buy-the-dip trigger at $101.50 we will wait for ASML to close above $110.25 and then buy calls the next day. Move the stop loss to $99.65 and adjust the option strike to the 2016 Jan. $120 call. Option Format: symbol-year-month-day-call-strike

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


Twenty-First Century Fox, Inc. - FOXA - close: 38.89

Comments:
12/28/14: FOXA managed another weekly gain but shares have been churning sideways the last few days. We are still waiting for a pullback. There is no change from my prior comments.

Earlier Comments: December 21, 2014:
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)

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

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


International Paper - IP - close: $54.28

Comments:
12/28/14: We have been patiently waiting for a correction in IP but the stock has continued to churn sideways. I'm a little worried that IP could be forming a bearish head-and-shoulders pattern over the last several weeks.

Tonight we are removing IP from our watch list. You may want to keep it on your radar screen. A dip toward support near $50.00 could be a bullish entry point.

Trade did not open.

12/28/14 removed from the watch list.

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


Wal-Mart Stores Inc. - WMT - close: 86.91

Comments:
12/28/14: The breakout in shares of WMT is encouraging but I'm unwilling to chase it. Retail-related stocks could see a post-Christmas depression. However, longer-term the fact that gasoline is at five-year lows is very bullish for WMT because it gives WMT's customers more money to spend.

Tonight we will leave our suggested entry point at $81.50 but I do not expect to be trigger any time soon. I'm suggesting we be patient and give WMT another couple of weeks before adjusting 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