Option Investor
Newsletter

Daily Newsletter, Sunday, 1/11/2015

Table of Contents

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

Leaps Trader Commentary

Stocks Suffer A Spasmodic Start To 2015

by James Brown

Click here to email James Brown

The stock market is off to a very rocky start in 2015. Rising concerns that Greece might end up leaving the Eurozone and the terrorist attacks in Paris generated a lot of uneasiness. Crude oil's decline didn't help with oil down seven weeks in a row. The jobs report was good but analysts are concerned over wage growth. Stocks did get a boost from some dovish comments out of two Federal Reserve governors this past week.

Overall it was the worst start to the year since 2009. All of the major U.S. indices posted weekly losses. The Dow Industrials and the NASDAQ composite both lost about -0.5%. The S&P 500 fell -0.65%. The small cap Russell 2000 dropped -1.0%. Housing stocks and biotech stocks were two groups that posted gains. Yet transports and banking stocks really underperformed with big declines. Oil-related equities also dropped sharply. Crude oil tagged new five-year lows. Meanwhile gold and silver rebounded, likely on geopolitical fears.

Economic Data

There was a lot of economic data to digest. The FOMC minutes were a non event last week. However, Charles Evans is the Fed President of the Chicago Federal Reserve and he is a voting member of the FOMC this year. Evans gave the market a boost when he said raising rates too early would be a catastrophe. He suggested that the Fed should wait to raise rates until 2016. Meanwhile another Fed President, this time Atlanta's Dennis Lockhart, also offered dovish comments suggesting the Fed should be patient and not rush into raising rates too soon.

The latest vehicle sales numbers showed a healthy pace of 16.8 million automobiles a year. That's a little less than expected but still strong. The ISM services index dropped from 59.3 in November to 56.2 in December. This drop is noteworthy because it's the first time ever that all ten components of the ISM services index declined at the same time.

The latest reading on factory orders showed a drop of -0.7% in November. That was worse than the -0.5% expected and the fourth monthly decline in a row. Meanwhile wholesale inventories rose +0.8% in November following October's +0.6%, which was revised up from +0.4%.

The most recent reading on U.S. consumer confidence hit a seven-year high. That might be due to the improving labor market. The ADP National Employment Report said their November numbers were revised up from 208,000 to 227,000. December's number came in at +241K.

The nonfarm payroll (jobs) report on Friday morning also beat expectations with +252,000 new jobs in December. The jobs gain in December capped the best year for job growth in the U.S. since 1999 with 2.95 million jobs created. It's also the 58 month in a row of job gains, which is a record. Unfortunately most of those jobs have been part time as businesses hire more part time employees to keep their hours under 30 to avoid the expense of Obamacare.

November's jobs number was revised higher from 321,000 to 353,000. October was revised up from 243K to 261K. Altogether that puts the 2014 average job growth at +246,000 a month. Sadly there were some sore spots in the jobs data. Economists are concerned with the drop in average hourly wages, which declined -0.2% in December after a +0.2% gain in November. Falling wages is deflationary and a warning sign for the Fed. Plus the labor force participation rate plunged back to 62.7%, which is the lowest level since December 1977.

Analysts are starting to worry about the impact that the collapsing price of crude oil could have on employment inside the U.S. The Dallas Federal Reserve is estimating that 125,000 people will lose their jobs in the energy sector in the next six months. Ancillary jobs to the energy sector could see another 50,000 decline.

There was a lot of speculation, or possibly hope, that crude oil could be bottoming. The price of crude did decline last week but it spend most of the week churning sideways. Friday did see a dip to new multi-year lows. If you look closely oil still has a trend of lower highs. I've heard a lot of speculation that WTI crude oil prices are headed for $40.00 a barrel. Yet a Bank of America Merrill Lynch analyst is now forecasting a drop closer to $35 a barrel. There are option traders speculating on a drop below $30/bbl. (chart below is for the USO oil ETF, not WTI crude futures).

Chart of the USO oil ETF

AAA's Chart of gasoline prices

U.S. consumers are loving the low gas prices. On January 5th AAA reported that gas prices had fallen for 100 days in a row (a record). Today the national average is $2.13 a gallon. Several states have prices below $2. A barrel with a few approaching $1.50 a gallon. This is great news for consumers but it could be a powder keg for other parts of the world. Middle East oil producers could see increased turmoil. Russia is suffering from the big drop in oil as oil is a major export and the biggest influx of cash for the government's budget. Mexico is suffering. Just about every oil producer on the planet is getting hurt by oil's decline.

Overseas Economic Data

Economic data overseas was mostly negative. The only decent headline seemed to be Eurozone retail sales rising +0.6% last month, which was significantly better than the +0.2% estimated. Meanwhile Britain's industrial production dropped -0.1% for the month. France's fell -0.3%. Germany's dropped -0.1%. Germany also said their factory orders declined -2.4%. Retail sales in Germany rose +1.0%, which was better than expected but down from the prior month's +2% gain. German unemployment dropped to 6.5%, which is a level not seen in more than 20 years.

Last Tuesday the market's sell-off was fueled by growing worries that Greece is nearing an uncoordinated exit from the Eurozone. Researchers believe that the left-wing Syriza party in Greece is poised to have enough votes to win in that country's elections on January 25th. If they do win they could immediately vote to leave the Euro. According to an economic historian at the University of California at Berkeley, such an exit from the Eurozone would be like the Lehman Brother's financial disaster times two.

Another challenge is the European Central Bank's (ECB) next attempt at quantitative easing (QE). The ECB is said to be considering at 500 billion euro QE program to be announced at their next meeting on January 22nd. However, Bloomberg reported on Friday that the ECB still hasn't decided what format such a QE program would take, and this rattled the equity markets.

Significant economic data out of Asia was relatively quiet last week. China said their Producer Prices data for December plunged -3.3%. That's the biggest drop in more than two years and marks the 34th month in a row of negative PPI readings.




Major Indices:

The S&P 500 saw some pretty big swings with a drop from the prior Friday's close of 2,058 down to Tuesday's low of 1,992 (-66 points). By Friday morning the S&P 500 was back up to 2,064 (+72 points) but gains faded and the index ended the week with a loss. The Fed governor comments, the terrorist attack in Paris, the economist data, and Greece marching toward a euro exit all played a part in the volatility.

The index is kind of in no man's land at the moment. It might find support in the 1,990-2,000 zone on a decline. While the 2,065-2,095 area looks like overhead resistance. There is no trend on a short-term basis. Meanwhile the long-term trend is looking a little ragged.

Intraday chart of the S&P 500 index:

chart of the S&P 500 index:

Weekly chart of the S&P 500 index

The NASDAQ composite had an equally volatile week. The index closed right in the middle of its recent trading range. The 4,800 area is clearly overhead resistance while support appears to be in the 4,550 region. Where is goes next is anyone's guess.

chart of the NASDAQ Composite index:

Weekly Chart of the NASDAQ Composite index:

The small cap Russell 2000's performance last week doesn't provide a lot of clues either. The bounce from Tuesday's low does create a higher low. Unfortunately the reversal from its late December highs looks like a failed rally or bull trap breakout pattern.

chart of the Russell 2000 index



Economic Data & Event Calendar

This week we will get both the wholesale (PPI) and retail (CPI) data on inflation in the U.S. We'll also see two regional Fed surveys (New York and Philadelphia). The Philly Fed number might be a challenge. In November this was a shockingly higher 40.2. December's Philly Fed survey dropped to 24.3. Today analysts are expecting the survey to decline to 20.0 (numbers above zero suggest growth).

The biggest event for the week is probably the kick off for Q4 earnings season on Monday.

Economic and Event Calendar

- Monday, January 12 -
Q4 earnings season begins

- Tuesday, January 13 -
(nothing significant)

- Wednesday, January 14 -
U.S. Retail Sales
Business Inventory data
Federal Reserve's Beige Book
Japan's machine tool orders

- Thursday, January 15 -
Producer Price Index (PPI)
New York Empire State manufacturing survey
Philadelphia Fed survey

- Friday, January 16 -
Consumer Price Index (CPI)
U.S. Industrial Production
University of Michigan Consumer Sentiment

Additional Events to be aware of:

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

Looking Ahead:

As we look ahead the market's focus should turn toward corporate earnings. The Q4 earnings season starts on Monday. Two months ago analysts were expecting the S&P 500 to earning between $130-138 in 2015. Today those estimates have been reduced to about $120. The super sharp rise in the U.S. dollar will hurt sales. About 50% of revenues from the S&P 500 companies does occur overseas and a high dollar makes them less competitive and more expensive. Another challenge is earnings from the energy sector. They are a significant portion of the U.S. economy. The crash in oil prices is estimated to produce a -23% drop in earnings for the industry. Of course earnings are in the rear window so Wall Street is always more sensitive to corporate guidance. Will American corporations issue bullish or bearish guidance as they look forward into 2015 and beyond?

On a short-term basis I am market neutral. I suspect the next couple of weeks might see more volatility. Earnings results will definitely flavor market direction. Yet investors, especially fund managers, might keep their eye on the ECB meeting scheduled for January 22nd and the Greek elections on January 25th. Therefore they might wait until after these two events before committing new capital to the market.

Bigger picture I'm still positive on the U.S. economy and stock market but that doesn't mean the market can't see a correction. The U.S. market has gone almost 1,200 days without a -10% correction. The closest we got was a -9.8% pullback on an intraday basis back in October 2014.

Meanwhile give your elected officials a call. The story this past week is that several Republicans and Democrats think it's a perfect time to raise the gas tax while prices are so low. I'm sure they'd like to hear your opinion on this issue.

~ James







Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

It was a very volatile week for stocks. The first full trading week of 2015 was marked by rising concern over a Greek exit from the Eurozone, a terrible massacre by terrorists in Paris, and another decline in crude oil.

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

I have updated stop losses on AAL and MU.

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

Another Watch List Graduation

by James Brown

Click here to email James Brown


- New Trades -


NXP Semiconductors - NXPI - close: 80.32

Comments:
01/11/15: NXPI displayed significant relative strength last week. Shares broke through resistance to close at all-time highs.

We had NXPI on our watch list. The plan was to wait for the stock to close above $78.50 and then buy calls the next day. Shares met that requirement with Friday's close at $80.32. Our trade begins on Monday morning. However, nimble traders may want to wait for a dip closer to $78.50 since NXPI is arguably short-term overbought with the big three-day bounce. Broken resistance near $78.00 should be support. I don't see any other changes from my earlier comments.

Earlier Comments: January 4, 2015:
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 $10.20

01/12/15 Trade begins.
01/09/15 NXPI closed at $80.32, above our trigger, which was a close above $78.50
Option Format: symbol-year-month-day-call-strike

Chart of NXPI:

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



Play Updates

Stocks Endure A Tumultuous Week

by James Brown

Click here to email James Brown

Editor's Note:

FOXA graduated from our watch list to our active play list.


Closed Plays



None. No closed plays this week.




Play Updates


American Airlines Group - AAL - close: 52.02

Comments:
01/11/15: Another weekly decline in oil prices failed to lift shares of AAL. The stock was also given a $74 price target by one analyst but that didn't help much either.

AAL encountered some profit taking during a volatile week in the market. I warned readers last weekend that AAL had a good chance of retesting the $52.00 level, which is where it closed on Friday. Investors can decide to either buy this dip or wait for a bounce. If AAL breaks down further the next potential support should be the $50.00 mark.

Tonight I am raising our stop loss to $46.75.

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 $ 5.70/ 5.85

01/11/15 new stop @ 46.75
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

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: 112.01

Comments:
01/11/15: AAPL sank to new two-month lows on January 6th and dipped below the $105 level. Fortunately investors finally bought the dip and shares bounced. The company announced record revenues for its app store. Analysts are expecting pretty big numbers for Q4 iPhone sales when AAPL reports earnings later this month.

Last week I suggested buying calls on a bounce off the 100-dma (near 105-106) and the stock delivered on that entry point (Wednesday's session). At this point I might hesitate on new positions.

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

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

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

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

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

Tonight I am suggesting a buy-the-dip trigger to buy calls at $103.50 with a stop loss at $98.90. (We amended the buy-the-dip trigger to $111.00 on Nov. 30th).

- Suggested Positions -
DEC 09, 2014 - entry price on AAPL @ 110.19, option @ 9.55
symbol: AAPL160115C120 2016 JAN $120 call - current bid/ask $10.20/10.40

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: $16.98

Comments:
01/11/15: Banking stocks had a rough week with big declines on Monday and Tuesday. BAC managed to hold technical support at its 100-dma but the trading last week looks ominous. That's in spite of an upgrade by Credit Suisse.

At this point I am not suggesting new positions. We should wait until after BAC reports earnings, which will be January 15th, before the opening bell. Wall Street expects a profit of $0.30 a share.

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 $0.70/0.71

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: 80.58

Comments:
01/11/15: CHKP outperformed last week. When the market bounced on Wednesday and Thursday shares of CHKP surged although it seems to be struggling with the $81 level as short-term resistance.

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 $7.90/8.20
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: $60.95

Comments:
01/11/15: CHL delivered a nice bounce last week with gains four days in a row. The breakout past $60 and its 50-dma is bullish. I am suggesting investors hesitate to launch new positions. CHL still has a trend of lower highs it needs to break.

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

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

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

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

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

- Suggested Positions -
NOV 11, 2014 - entry price on CHL @ 61.39, option @ 2.80
symbol: CHL160115C70 2016 JAN $70 call - current bid/ask $2.10/2.40

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: 27.79

Comments:
01/11/15: Traders bought the dip in CSCO twice near the $27.00 level last week. The rebound from this level pushed CSCO to a minor weekly gain. More conservative investors may want to wait for a new close above $28.50 before initiating new bullish 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 $1.31/1.35

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: $94.25

Comments:
01/11/15: DIS delivered a 50-cent gain for the week after shares bounced near its rising 50-dma. The trend of higher lows remains intact. DIS earnings are coming up on February 3rd.

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 $5.75/5.95

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: 77.74

Comments:
01/11/15: FB posted a loss for the week but shares still bounced near its trend of higher lows. I'd be tempted to buy calls on a rally past $79.00 but you might want to wait for a new close above $80.00. More conservative investors may want to wait until after we see how the market interprets FB's earnings report, which comes out on January 28th.

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 $5.80/6.05

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


Twenty-First Century Fox, Inc. - FOXA - close: 35.38

Comments:
01/11/15: Ouch! It has been an ugly two weeks for shares of FOXA. We had FOXA on our watch list and we were expecting a pullback. The plan was to buy calls on a dip at $37.50. Unfortunately for us FOXA pulled back and then failed to stop declining. Thursday's oversold bounce snapped a six-day losing streak and then FOXA rolled right back over again on Friday.

The intraday low on Wednesday was $34.99. Our stop loss is at $34.90. I'm concerned that if there is any follow through lower we will see FOXA hit our stop loss.

I am not suggesting new positions at this time.

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.

Long 2016 Jan $40 call (FOXA160115c40) entry $2.75

01/05/15 triggered at $37.50
01/04/15 adjusting the stop loss from $35.65 to $34.90
Option Format: symbol-year-month-day-call-strike

Chart

Current Target: FOXA @ TBD
Current Stop loss: 34.90
Play Entered on: 01/05/15
Originally listed on the Watch List: 12/21/14



The Goldman Sachs Group, Inc. - GS - close: $187.35

Comments:
01/11/15: Financial stocks delivered an ugly week and GS was no exception. The stock even received an upgrade and a $225 price target last week but that didn't help. What really concerns me is Friday's reversal. The stock's bounce reversed hard at technical resistance at its 10-dma and 50-dma near $191.

Earnings are coming up on January 16th, before the opening bell. Wall Street expects a profit of $4.37 a share.

I am not suggesting new positions at this time.

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

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

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

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

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

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

- Suggested Positions -
DEC 10, 2014 - entry price on GS @ 192.25, option @ 10.75
symbol: GS160115C210 2016 JAN $210 call - current bid/ask $ 7.35/ 8.75

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: 146.75

Comments:
01/11/15: When the stock market bounced last week many of the healthcare names soared. HUM rebounded from Tuesday's low of $137.45 to $148.00 by Thursday afternoon. The volatility is a bit worrisome. Last week I was suggesting an entry point if HUM bounced from support but these volatile moves make me more cautious.

More conservative investors may want to move their stop closer to last week's low (137.45).

FYI: HUM is scheduled to report earnings on February 4th.

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 $18.60/20.20

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: 33.53

Comments:
01/11/15: MU reported earnings on January 6th. Earnings were 97 cents a share, which beat estimates of 92 cents. Revenues rose +13% to $4.57 billion but that failed to beat the $4.6 billion estimate. The company did see significant gross margin improvement. However, management lowered their Q2 revenue estimates into the $4.1 to $4.3 billion range. That's significant below Wall Street's estimate around $4.5 billion.

MU's stock gapped down the next day (Wednesday) in reaction to the disappointing guidance but managed to pare its losses. The revenue warning does worry me but we are going to keep our stop loss below $30.00. I will raise it from $29.40 to $29.85. More conservative investors may want to use a stop closer to $31.40 instead (last week's low was $31.45).

I am not suggesting 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 $2.69/2.79

01/11/15 new stop @ 29.85
01/06/15 MU reported earnings and lowered their revenue guidance
12/01/14 triggered @ 35.10
Option Format: symbol-year-month-day-call-strike

Current Target: MU @ TBD
Current Stop loss: 29.85
Play Entered on: 12/01/14

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


Restoration Hardware - RH - close: 93.62

Comments:
01/11/15: Last week I cautioned readers that RH might try and fill the gap. The stock dipped close to $90 before bouncing. What worries me tonight is how the bounce on Thursday failed at its new short-term trend of lower highs.

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 $15.50/18.80

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: $108.70

Comments:
01/11/15: It was a volatile week for the market and shares of RTN. The stock tagged an intraday low of $105.01 and an intraday high of $110.27 in three days only to close the week virtually unchanged.

I am not suggesting new positions at the moment.

FYI: RTN is scheduled to report earnings on January 29th.

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 $ 5.90/6.10

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: 79.79

Comments:
01/11/15: SBUX traders are probably feeling a bit seasick with all the volatility. Shares gapped down. Shares gapped higher. Shares were downgraded. Shares were upgraded. All of that occurred in the last five sessions. SBUX appears to be inside a $78.50-83.50 trading range.

I am not suggesting new positions at this time.

FYI: SBUX is scheduled to report earnings on January 22nd.

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 $ 3.00/3.15

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: 126.08

Comments:
01/11/15: TM also endured a tumultuous week with big swings both directions. On January 5th TM reported their December car sales rose +12.7% from a year ago to 215,057 vehicles.

I am not suggesting new positions. Friday's session has generated a bearish engulfing candlestick reversal pattern but this needs to see confirmation.

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 $ 7.20/ 7.80

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


Watch

Healthcare & Homebuilders

by James Brown

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New Watch List Entries

ANTM - Anthem, Inc.

ITB - U.S. Home Construction ETF


Active Watch List Candidates

AET - Aetna Inc

LVLT - Level 3 Communications

MAR - Marriott Intl.

WMT - Wal-Mart Stores


Dropped Watch List Entries

FOXA graduated to our active play list.

ASML has been removed from the watch list.

WMT has a new entry point strategy.

NXPI has been moved from the watch list to our new play section.



New Watch List Candidates:

Anthem, Inc. - ANTM - close: 129.80

Company Info

Anthem, Inc. is one of the largest healthcare insurance companies in the world. The company recently changed its name from Wellpoint to Anthem. They currently offer healthcare plans to almost 68 million people.

Healthcare names displayed significant strength last year as Obamacare added millions of new customers to the health insurance industry. That trend should continue into 2015. ANTM's long-term bullish trend has been butting up against major resistance at $130. That resistance broke on Thursday.

We'd like to see some follow through higher. Tonight I'm suggesting we wait for ANTM to close above $132.00 and then buy calls the next morning with a stop loss at $122.45.

FYI: ANTM is scheduled to report earnings on January 28th and shares could be volatile that morning as investors digest the results.

Breakout trigger: Wait for ANTM to close above $132.00
Then buy calls the next morning with a stop at $122.45

BUY the 2016 Jan $140 call (ANTM160115c140) current ask $9.95

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

Chart of ANTM:

Originally listed on the Watch List: 01/11/15


iShares US Home Construction ETF - ITB - close: 26.61

Company Info

The ITB is an exchange traded fund that mimics the Dow Jones U.S. Select Home Construction Index. The top 12 holdings are DHI, LEN, PHM, TOL, NVR, HD, TPH, LOW, RYL, SHW, KBH and MTH.

This index has been stuck in a trading range for years. That looks like it's about to change. Have you looked at a chart of the 10-year bond yield lately? Bond yields are going lower. That's going to pressure mortgage rates lower and that's bullish for home sales. This past week saw 30-year mortgage rates dip below 3.6%. That's a 19-month low.

If that wasn't enough of a tailwind President Obama wants to help. On January 7th the White House announced plans to reduce the government mortgage insurance premiums in an effort to boost home ownership. Another positive for the homebuilders is the U.S. Federal Reserve. We just had two fed governors come out last week saying they think the Fed should hold off on raising rates. The longer the Fed waits to start raising rates the better it will be for homebuilders.

Currently the ITB appears to be breaking out past major resistance and closed at multi-year highs. I'd like to see a little bit more follow through. Tonight I'm suggesting we wait for the ITB to close above $27.00 and then buy calls the next morning with a stop loss at $23.95.

Breakout trigger: Wait for the ITB to close above $27.00 and then buy calls the next morning with a stop at $23.95.

BUY the 2016 Jan $30 call (ITB160115c30) current ask $1.65

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

Chart of ITB:

Originally listed on the Watch List: 01/11/15


Active Watch List Candidates:



Aetna Inc. - AET - close: 91.04

Comments:
01/11/15: Buying AET on a dip near $86 is starting to feel like wishful thinking. Last week, when the market bounced, healthcare stocks soared. AET hit new highs above $92.00.

I do not want to chase the rally here. I'm going to leave AET on our watch list for another week or two and we'll either adjust our entry strategy or remove it.

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: 102.09

Comments:
01/11/15: The market's sell-off from the late December high hit shares of ASML pretty hard. The stock collapsed with a drop from $110 to $100. It's unlikely that ASML will meet our suggested entry point, a close above $110.25, any time soon. Even though $100 is round-number support I don't want to buy calls here. We'll look at ASML again after the company reports earnings on January 21st.

Tonight we are removing ASML from the watch list.

Trade did not open.

01/11/15 removed from the watch list
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


Level 3 Communications - LVLT - close: 47.21

Comments:
01/11/15: LVLT is currently trading near the bottom of a $46.50-50.00 trading range. If shares continue to sink we'll remove it as a candidate. Currently we are on the sidelines. 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


Marriott Intl. - MAR - close: 78.73

Comments:
01/11/15: MAR delivered a strong rebound off last week's lows. Once again the stock is poised to breakout past key resistance and hit new highs. We want to see shares close above $80.25 before buying calls.

Earlier Comments: January 4, 2015:
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)

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

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


Wal-Mart Stores Inc. - WMT - close: 89.35

Comments:
01/11/15: It was a very bullish week for WMT with shares soaring to all-time highs. The stock displayed significant relative strength. When the market was sinking on Monday and Tuesday last week was holding short-term support near $85.50 and started to rally ahead of everyone else. Then when the market bounced WMT broke out.

On Friday Bloomberg reported that the holiday sales in 2014 were significant better than anticipated. According to ShopperTrak the November-December time frame saw holiday spending surge +4.6%. That beat ShopperTrak's estimate of +3.8% and marked the best performance since 2005. You can bet that WMT was a big beneficiary of this trend, especially since lower gas prices means WMT's customers had a bigger percentage of their income available to spend on other items.

It looks like our plan to buy calls on a dip at $81.50 is not going to happen. Tonight we are updating our strategy. We will move the buy-the-dip trigger from $81.50 to $87.50. We'll move the stop loss to $81.90. Move the option strike to the 2016 Jan. $90 call.

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 @ $87.50, use a stop loss at $81.90.

BUY the 2016 Jan $90 call (WMT160115c90)

01/11/15 Strategy Update Move the buy-the-dip trigger from $81.50 to $87.50. Move the stop loss to $81.90. Move the option strike from 2016 Jan. $85 call to the 2016 Jan. $90 call. Option Format: symbol-year-month-day-call-strike

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