Option Investor
Newsletter

Daily Newsletter, Sunday, 1/4/2015

Table of Contents

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

Leaps Trader Commentary

Stocks Sag Into 2015

by James Brown

Click here to email James Brown

The stock market's Santa Claus rally has fizzled. Bulls ran out of breath after the S&P 500 tagged new record highs on Monday, Dec. 29th. The holiday shortened week saw the S&P 500 decline -1.46%. That puts the 2014 gain at +11.4%. The NASDAQ ended 2014 with a +13.4% gain. Overall a pretty good year. However, the Chinese Shanghai Composite soared +53% in 2014 while Argentina's market rallied +59% last year. On the flip side Greece's stock market dropped -29% while Russia's market plunged -45% in 2014.

Stocks experienced relatively widespread profit taking with nearly every sector posting losses. The housing industry seemed to be the only group with a minor gain for the week. The U.S. dollar continues to climb and just had its best year (2014) since 2005 thanks to the Fed ending QE while Europe and Japan turning on stimulus to support their economies. Against the six major currencies the U.S. dollar rallied +12.8% in 2014. This dollar strength is pressuring commodities lower. Gold is down again and closed at $1,189 an ounce. Silver followed suit with a drop to $15.78 an ounce. Crude oil slipped to its lowest levels since May 2009 with a decline to $52.81 a barrel. The yield on the U.S. ten-year bond ended at 2.1%.

The most probably explanation for the market's weakness this past week is profit taking, especially on Friday's decline. It's a near year. Investors can sell last year's winners and postpone paying taxes on the trade until 2016. This scenario might continue to play out over the next few days.

Economic Data

U.S. economic data was mixed. The Chicago PMI data snapped a four-month streak above 60 with a drop from 60.8 to 58.3 in December. Numbers above 50.0 suggest growth. Construction spending in the U.S. came in worse than expected with October's number revised up from 1.1% to 1.2% but November's number coming in at -0.3%.

The national ISM manufacturing index saw a drop from 58.7 in November to 55.5 in December. This is a six-month low but it's still the 19th month in a row that the ISM manufacturing index has come in above 50.0 (suggesting economic growth).

Overseas Economic Data

The story in Europe was focused on two things: The ECB and Greece. European Central Bank President Mario Draghi has been promising to launch some form of quantitative easing in the Eurozone for months. It looks like the ECB is finally ready to start. Europe is fighting the looming shadow of deflation as the euro currency dropped to its lowest level in four years. Draghi confessed to a German newspaper that deflation remains a risk. The ECB is scheduled to have an interim meeting on January 7th and then again on January 22nd. The best bet is the ECB might act at the January 22nd meeting.

The other big story was Greece. The country is edging closer and closer to committing financial suicide. The Greek parliament saw its third vote to approve Prime Minister Karolos Papoulias' president candidate fail. In response Papoulias dissolved the parliament and that forces snap elections to be held on January 25th. Right now the risk is that the country's citizens are so fed up with the current situation that they could elect the radical Left-wing Syriza party. If elected Syriza plans to leave the Eurozone and likely default on all of Greece's prior promises of austerity and bailout agreements.

By leaving the Euro it would allow Greece to reinstate the drachma as their currency. Using the drachma they could devalue their currency to make their country more competitive and reduce the value of their debts. The challenge is that an immediate exit, without the cooperation of the Eurozone, could cause a lot of instability in Europe. European markets saw a lot of volatility as this story unfolded last week.

The backdrop for all of this last week was a reminder that the Europe region is still slowing down. Spain, Italy, France, Britain, and the Eurozone all reported their manufacturing PMI data last week and they all declined. Germany said their manufacturing PMI was flat. Meanwhile bond yields across most of Europe are multi-year if not all-time lows. The yield on the German 10-year note is down to 0.5%. The yield on the 5-year German bund actually dipped into negative territory (-0.1%) on Friday.

China is also dealing with slowing growth. The China HSBC manufacturing PMI improved from 49.5 to 49.6 but it's still in negative territory under the 50.0 mark. The official China PMI data dipped from 50.3 to 50.1 in December. This is a one-year low. There is a growing camp of analysts that believe China will add more stimulus to reenergize their economy in 2015.




Major Indices:

The S&P 500's +11% gain in 2014 marks the index's sixth year in a row of positive gains. It's the third year in a row of double-digit gains. The Wall Street Journal raised the caution flag over the market's valuation. Over the last ten years the S&P 500 has traded with a forward P/E of 13.2. It just ended 2014 with a forward P/E of 16.4 (compared to 2013's 15.4).

I cautioned readers last week to look for support near 2,050. The low on Friday was 2,046. If the Friday afternoon bounce fails then the S&P 500 could be headed for the 2,000 area. Meanwhile the 2,090-2,100 zone is overhead resistance.

chart of the S&P 500 index:

The NASDAQ composite pared its 2014 gain last week but still closed up more than +13% for the year. I warned readers that a pullback near 4,800 would look like a potential bearish double top. That's what we are facing today. The NASDAQ did find short-term support near 4,700 on Friday. If that level fails then 4,650 and 4,550 could be the next levels to watch for support (see the Fibonacci levels on the daily chart below).

chart of the NASDAQ Composite index:

The yearend rally in the small cap Russell 2000 has stalled. The $RUT was due for a pullback. The fact that its bounced on Friday near its prior highs is potentially bullish. If the $RUT can close above 1,222, which would be a new record high, it would be a very bullish sign for the market. Don't forget the $RUT has an inverse H&S pattern that suggests a 1,340 target.

chart of the Russell 2000 index



Economic Data & Event Calendar

It's the first full week of the month and that means economic reports. The big report to watch will be Friday's jobs report. December's number could be volatile due to all the temporary workers hired for the holidays but it should be over 200,000 new jobs.

It's worth noting that the Q4 earnings season is about to start with Alcoa (AA) on January 12th.

Economic and Event Calendar

- Monday, January 05 -
Auto and Truck sales for December

- Tuesday, January 06 -
ISM services index
Factory Orders from November

- Wednesday, January 07 -
ADP Employment Change Report for December
ECB meeting (no interest rate decision)
FOMC minutes from the last meeting

- Thursday, January 08 -
Bank of England interest rate decision

- Friday, January 09 -
U.S. nonfarm payrolls (jobs) report for December
Unemployment rate
Wholesale inventory data

Additional Events to be aware of:

Jan. 22nd - ECB meeting
Jan. 25th - Greece Elections
Jan. 27-28th FOMC two-day meeting
Jan. 28th - FOMC policy update

Looking Ahead:

Not much has changed in the last few days. Most market participants have been on vacation for the yearend holidays. They should be back to work this week and that will bring an increase in volume.

The drop in crude oil and gasoline continues to make headlines. Oil sank to new five-year lows this past week. The price of gasoline in the U.S. has fallen a record-breaking 99 days in a row. The average price per gallon is now $2.23 but several states have prices under $2.00. I believe Oklahoma City has the lowest in the nation with several gas stations listing prices for unleaded in the $1.55-1.59 a gallon range.

Travel group AAA claims that the drop in gas prices in 2014 saved Americans about $14 billion. That's about $43.75 for every person in the U.S. AAA is now estimating that Americans could save up to $75 billion in 2015 if prices stay low. This should be a huge boost for the U.S. economy since nearly 70% of GDP is consumer spending.

The big picture outlook for the market is bullish. That's because the U.S. economy is entering 2015 with some positive momentum. We have low gas prices to fuel strong retail spending. We have low interest rates to help with business investment. The labor market gone from glacial growth to lukewarm growth. Investors are ignoring an economic slowdown in China, Japan, and Europe due to dovish central bank policies and the expectation for more stimulus for their economies. The one sour note might be strength in the U.S. dollar. Half of the S&P 500 companies' sales come from overseas and a super strong U.S. dollar could hurt business.

Additional issues to watch are Russia, ISIS, the U.S. Fed. Russia and its president, Vladimir Putin, are wounded animals. Their economy is crashing. Their main export oil has seen its price cut in half. There are concerns that Putin could spin the struggling economy into a narrative that supports more military conflict in Europe. ISIS remains a significant threat to the Middle East. Without the porous southern U.S. border I am surprised there hasn't been more terrorist attacks inside the U.S. It might be just a matter of time. Increase geopolitical conflict could unnerve investors.

Last but not least is the U.S. Federal Reserve. According to research done by Barrons, since 1955, every time the Fed started a cycle of raising rates the stock market sold off. If that wasn't bad enough the stock market continued to struggle until the Fed was done raising rates. Right now it is widely expected that the Fed will announce their first rate hike in mid 2015 or the second half of 2015.

~ James







Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

Stocks were down almost across the board last week. The simple answer is profit taking after two weeks of stock market gains.

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

Last week our plan was to exit the UA trade on 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

Is the Failed Santa Rally A Warning?

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(January 04, 2015)

We are not adding any new trades tonight.

The market's recent weakness could be a warning signal. Normally the Santa Claus rally carries stocks higher from Christmas into the New Year but this year the rally faded. The most logical answer is simple profit taking after a strong year. Selling last year's winners now that we're into January 2015 locks in gains and postpones your tax issue into 2016. That also means the profit taking may not be over yet since a lot of market participants have been away on vacation.

I am still bullish on stocks for 2015 (as discussed in the market wrap). We should still be patient when it comes to entry points.

Last week we saw our AAL watch list candidate graduate to the active play list. Tonight I am adding MAR and NXPI as new watch list candidates.

I looked at a lot of stocks this weekend and was a little bit surprised with how many looked short-term bearish. The next couple of weeks might be challenging for the bulls.

I've trimmed my list of stocks on my radar screen below.

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:

IR, M, ATHN, FDS, LMT



Play Updates

Stocks Drift Lower Over New Year's

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. market peaked early last week and spent the rest of the holiday-shortened week slumping lower. Virtually all of our candidates followed the market's major indices lower last week but for the most part the profit taking was mild.


Closed Plays


Our plan was to close the UA trade on Monday, Dec. 29th.



Play Updates


American Airlines Group - AAL - close: 53.91

Comments:
01/04/15: Another weekly decline in crude oil helped fuel another week of gains for AAL. Shares rallied almost $2.00 in the holiday-shortened week. We had AAL on our watch list with a plan to buy calls if shares could close above $52.50. AAL met that requirement on December 29th with a close at $52.85. Our trade opened on Tuesday at $53.00. There is a decent chance that AAL will retest broken resistance near $52.00 as new support and that's where I would consider new positions.

Earlier Comments: December 28, 2014:
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.

- Suggested Positions -
DEC 30, 2014 - entry price on AAL @ 53.00, option @ 6.10
symbol: AAL160115C60 2016 JAN $60 call - current bid/ask $ 6.45/ 7.05

12/30/14 trade begins. AAL opens at $53.00
12/29/14 AAL closes at $52.85, above our trigger of $52.50
Option Format: symbol-year-month-day-call-strike

Chart of AAL:

Current Target: To Be Determined
Current Stop loss: 44.75
Play Entered on: 12/30/14
Originally listed on the Watch List: 12/28/14


Apple Inc. - AAPL - close: 109.33

Comments:
01/04/15: AAPL was one of the big caps best performers last year with a +37% gain in 2014. It's not surprising to see a little profit taking, especially on Friday since investors could lock in gains and postpone their taxes until 2016. Friday's decline also got some help with one analyst issuing some derogatory comments on AAPL's iWatch product suggesting it will not be the big hit many are expecting.

Thus far AAPL is still respecting the bullish trend of higher lows but if we see a close below $105-106 it might be time to worry. The simple 100-dma near $105.85 should offer some support and I would buy calls on a bounce off this moving average.

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 AAPL @ 110.19, option @ 9.55
symbol: AAPL160115C120 2016 JAN $120 call - current bid/ask $ 8.75/ 8.90

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: $17.90

Comments:
01/04/15: BAC was hitting multi-year highs before traders started taking profits on December 31st. Fortunately dip buyers stepped in on Friday and reduced BAC's weekly loss to just 8 cents.

Investors may want to wait until after BAC reports earnings on January 15th before considering new positions.

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 $0.87/0.89

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: 78.46

Comments:
01/04/15: CHKP saw some profit taking last week with declines five days in a row. Shares started to bounce from support on Friday but that's no guarantee the pullback is over.

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 $6.80/7.10
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: $58.49

Comments:
01/04/15: I'm not happy with CHL's performance last month. I'm worried the stock is forming a bearish trend of lower highs. CHL looks headed back toward support near $56.00. 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 $1.45/1.75

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: 27.61

Comments:
01/04/15: CSCO was not immune to the widespread profit taking over the last couple of days. Last week I suggested a dip to $27.50 was a new entry point and shares slipped to $27.38 before paring its losses on Friday. This looks like another chance to launch positions.

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 $1.20/1.23

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

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: $93.75

Comments:
01/04/15: DIS was also caught up in the market's pullback from last week's highs. If this dip continues I would use a drop into the $90-92 zone as a new entry point to buy calls although more conservative investors may want to launch positions on a bounce from this area instead of buying the dip.

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 $5.70/5.90

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: 78.45

Comments:
01/04/15: We see a similar story in FB. The stock was hitting new record highs before the year ended and now the stock is seeing some profit taking. I would consider new bullish positions here on this dip. However, nimble traders may want to cross their fingers and hope for a dip closer to $76.00 as an entry point to buy long-term calls.

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 $6.05/6.25

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

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: $194.41

Comments:
01/04/15: It was a quiet week for GS. Shares mostly traded sideways. If the stock does see a pullback GS should find technical support at its rising 100-dma near $185.00. More conservative investors may want to wait and see how the market reacts to GS' earnings report on January 16th before considering new positions.

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 $ 9.10/10.75

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: 142.99

Comments:
01/04/15: Hmm... should we be worried? HUM is down two weeks in a row. It's not much, only about 2%, but it puts me on the defensive when it comes to new positions. The $140.00 level should be decent support and below that $135.00 as well. I would wait for a rebound off one of these levels before considering new bullish positions.

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 $16.00/19.20

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: 34.75

Comments:
01/04/15: MU is only down 25 cents for the week. Traders are likely on the sidelines waiting for MU's earnings report. The company announces its quarterly results this week on Tuesday, January 6th, after the closing bell. I am not suggesting new positions at this time. We need to see how the market reacts to MU's results. More conservative traders may want to raise their stop loss.

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 $3.70/3.80

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: 95.14

Comments:
01/04/15: RH has spent the last couple of weeks consolidating sideways after the big rally on December 12th. There is a chance that RH could try and fill the gap, which would mean a painful drop back toward $86-87. If you do not want to endure that sort of move then I suggest you raise your stop loss. Currently our stop is at $84.85.

I am not suggesting new positions at this time.

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

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

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

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

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

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

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

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

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

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

- Suggested Positions -
NOV 22, 2014 - entry price on RH @ 88.93, option @ 15.70*
symbol: RH160115C90 2016 JAN $90 call - current bid/ask $16.90/18.20

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: $108.61

Comments:
01/04/15: RTN suffered some profit taking last week but it wasn't that bad. If the market continues to dip the level to watch is the $102-105 area, which should be support for this stock. I'd wait for dip near $105 before considering new positions.

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

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

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

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

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

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

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

- Suggested Positions -
NOV 25, 2014 - entry price on RTN @ 106.52, option @ 4.85
symbol: RTN160115C115 2016 JAN $115 call - current bid/ask $ 5.55/5.80

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: 81.44

Comments:
01/04/15: SBUX only lost about 40 cents for the week. Traders were buying the dip near its 10-dma on Friday. Last week I suggested a close above $82.50 before launching new positions. That hasn't happened yet. If you look hard enough on the intraday chart the rally in SBUX last week failed at a new trend of lower highs. That puts me on the defensive (short-term). I'm not suggesting new positions at this time. We'll see how SBUX performs this week and then reconsider.

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 $ 3.55/3.75

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: 125.67

Comments:
01/04/15: Shares of TM gapped down on December 30th after Reuters ran an article suggesting TM will miss its 2014 sales goal for its business in China. Their plan was to sell 1.1 million vehicles in China in 2014 and estimates suggest they're going to fall short at 1.09 million. TM executives said the economic slowdown in China and a price war in the local car market was hurting sales.

TM did not see any follow through on Tuesday's gap down as the stock consolidates sideways. This week will bring the latest numbers on auto sales inside the U.S. I'm 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 $ 7.00/10.00

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


CLOSED Plays


Under Armour, Inc. - UA - close: 66.89

Comments:
01/04/15: UA has not been cooperating. Last week we decided to cut our losses early and exit on Monday morning, December 29th. UA opened unchanged on Monday at $68.09.

- Suggested Positions -
NOV 20, 2014 - entry price on UA @ 70.20, option @ 6.95
symbol: UA160115C80 2016 JAN $80 call - exit $5.60 (-19.4%)

12/29/14 planned exit at the open
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

Chart

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

Lodging and Semiconductors

by James Brown

Click here to email James Brown


New Watch List Entries

MAR - Marriott Intl.

NXPI - NXP Semiconductors


Active Watch List Candidates

AET - Aetna Inc

ASML - ASML Corp.

FOXA - Twenty First Century Fox

LVLT - Level 3 Communications

WMT - Wal-Mart Stores


Dropped Watch List Entries

AAL graduated to our active play list.



New Watch List Candidates:

Marriott Intl. - MAR - close: 77.75

Company Info

MAR is in the services sector. The company describes itself as "Marriott International, Inc. (MAR) is a global leading lodging company based in Bethesda, Maryland, USA, with more than 4,100 properties in 79 countries and territories. Marriott International reported revenues of nearly $13 billion in fiscal year 2013. The company operates and franchises hotels and licenses vacation ownership resorts under 18 brands."

Earnings in 2014 have been improving and MAR beat Wall Street's estimates the last three quarters in a row. Their most recent report was late October with MAR delivering earnings of $0.65 per share. Revenues were up +9.5% to $3.46 billion, also above estimates. Guidance has only been in-line but that could be management playing it safe. Back in September the company outlined their growth plans through 2017. MAR said they will add more than 200,000 rooms around the world. Revenue per room available (RevPAR) is a key metric for the lodging industry. MAR expects 4 percent to 6 percent RevPAR growth in 2015 through 2017.

MAR is an international company and the CEO was recently asked about the economic slowdown in China, Japan and Europe and if it was hurting business. He said no. MAR's CEO said global travel in 2014 was better than the prior three years and he expects it to be healthy in 2015.

MAR focuses on three types of travel. They have the individual business traveler. There is group travel. Then leisure travel. MAR said they are seeing growth in all three areas. The improving U.S. economy could drive business travel and group travel. Lower gas prices mean more money for consumers so that can boost leisure travel. Plus, America has a ton of baby boomers retiring everyday. They travel more once they retire.

Technically shares of MAR have been consolidating sideways below resistance in the $78-80 zone the last several weeks. I am suggesting we wait for MAR to close above $80.25 and then buy calls the next day with a stop at $74.90.

Breakout trigger: Wait for a close above $80.25
Then buy calls the next day with a stop at $74.90

BUY the 2016 Jan. $90 call (MAR160115c90) current ask $3.10

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

Chart of MAR:

Originally listed on the Watch List: 01/04/15


NXP Semiconductors - NXPI - close: 76.81

Company Info

The S&P 500 index added about +11% in 2014. The SOX semiconductor index more than doubled that with a +28% gain. Shares of NXPI, a Dutch semiconductor company, saw its stock outpace its peers with a 2014 gain of +66%. That's because investors believe NXPI is well positioned to take advantage of growth in the connected car, cyber security, wearables, and the Internet of Things.

The company describes itself as "NXP Semiconductors N.V. (NXPI) creates solutions that enable secure connections for a smarter world. Building on its expertise in High Performance Mixed Signal electronics, NXP is driving innovation in the automotive, identification and mobile industries, and in application areas including wireless infrastructure, lighting, healthcare, industrial, consumer tech and computing. NXP has operations in more than 25 countries, and posted revenue of $4.82 billion in 2013."

It's also believed that NXPI is a chip supplier to Apple (AAPL) and NXPI's chips are in AAPL's iPhone and iPads.

Earnings have been good. NXPI managed to beat Wall Street's estimates on both the top and bottom line the last four quarters in a row. Back in July NXPI raised their guidance. Influential hedge fund manager David Tepper, who runs Appaloosa Management, launched a new position in NXPI back in the third quarter of 2014. In early December shares of NXPI were upgraded with a $100 price target by Oppenheimer.

Technically shares of NXPI have been consolidating sideways at their highs for the last several weeks. The $78.00 level is overhead resistance. I am suggesting we wait for NXPI to close above $78.50 and then buy calls the next morning with a stop loss at $69.75.

Breakout trigger: Wait for a close above $78.50
Then buy calls the next day with a stop at $69.75

BUY the 2016 Jan $85 call (NXPI160115c85) current ask $9.30

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

Chart of NXPI:

Originally listed on the Watch List: 01/04/15


Active Watch List Candidates:



Aetna Inc. - AET - close: 88.80

Comments:
01/04/15: We were expecting a pullback in AET but shares didn't fall far enough. Right now our plan is to buy calls on a dip at $86.00.

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:
01/04/15: Semiconductor stocks were not immune to the market's widespread pullback last week. Shares of ASML followed the market lower with a dip to its 30-dma. Currently we are waiting for a breakout higher and a close above $110.25.

FYI: ASML is scheduled to report earnings on January 21st.

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: 37.85

Comments:
01/04/15: We were hoping for a dip in FOXA and the stock declined three days in a row. Shares look poised to hit our suggested entry point at $37.50 soon. More conservative investors may want to wait and cross your fingers for a dip closer to $36.50 as an alternative entry point. Please note that I am adjusting our stop loss to $34.90.

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 $34.90

BUY the 2016 Jan $40 call (FOXA160115c40)

01/04/15 adjusting the stop loss from $35.65 to $34.90
Option Format: symbol-year-month-day-call-strike

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


Level 3 Communications - LVLT - close: 49.35

Comments:
01/04/15: LVLT held up pretty well. Shares only suffered a forty-cent decline. We are waiting for a breakout past resistance at $50.00. We want to see LVLT close above $50.50.

Earlier Comments: December 28, 2014:
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)

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

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


Wal-Mart Stores Inc. - WMT - close: 85.90

Comments:
01/04/15: I don't see any changes from last week's comments on WMT. We need to be patient. Right now we're waiting for a significant dip and that could take a few weeks.

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