Option Investor
Newsletter

Daily Newsletter, Sunday, 1/25/2015

Table of Contents

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

Leaps Trader Commentary

The ECB Finally Launches QE In Europe

by James Brown

Click here to email James Brown

It was a short trading week with the U.S. market closed last Monday. In that time frame stocks digested a number of events including the European Central Bank announcing a significant QE program. This pushed the euro to an 11-year low while the dollar rallied to an 11-year high. Dollar strength is pushing commodities like oil lower. Crude oil sank to new six-year lows and closed near $45.50 a barrel. Yet currency weakness around the globe is lifting precious metals. Gold prices rallied +1.0% last week while silver surged +2.9%.

Chart of the Euro ETF

Economic Data

It was a relatively quiet week for economic data. The Chicago Fed National Activity Index declined from +0.92 in November to -0.05 in December. Negative numbers suggest a slowdown in economic activity. It was the first negative reading in four months.

Elsewhere the NAHB housing market index retreated from 58 in December to 57 in January. The latest existing home sales data show sales rise from an annual pace of 4.93 million in November to 5.04 million in December. This was below expectations but a significant improvement from a year ago.

Overseas Economic Data

The Eurozone reported its manufacturing PMI improved from 50.6 to 51.0. Germany said its manufacturing PMI inched lower from 51.2 to 51.0. France saw improvement with their manufacturing PMI bouncing from 47.5 to 49.5. Numbers above 50.0 indicate growth and below 50.0 contraction.

Of course the big economic event in Europe was the much anticipated European Central Bank (ECB) meeting. The ECB tried to manufacture an artificial market rally by setting up expectations for the meeting. It was widely believed that the ECB would announce some form of quantitative easing but there were a lot of questions about how big it would be and what form it would take. The day before the ECB meeting's decision it was "leaked" that they might announce a QE program of €50 billion a month for two years. Then ECB governing council member Ewald Nowotny told reporters that investors should not get "overexcited" about the meeting on Thursday. They were trying to lower market expectations so their announcement of €60 billion a month, +20% above expectations, would be an upside surprise and fuel a market rally.

They were somewhat successful. The U.S. market did rally on the ECB news. The German market has been hitting all-time highs. The ECB left their interest rate unchanged at 0.05%. As far as their asset-buying program, they did announce a QE program of €60 billion a month through September 2016 or until the Eurozone hits their 2% inflation target. That makes the QE program worth about €1.14 trillion (about $1.28 billion).

ECB President Mario Draghi has a challenge that Fed Chairman Janet Yellen does not. Yellen has one country to deal with. Draghi has 19, each with their own economy and their own struggles. Nobody wanted citizens in one country on the hook to pay for another country's financial woes should their QE program fail to work. Therefore the 19 different central banks among the Eurozone members will each buy bonds from their own country for a grand total of €60 billion a month.

This program will begin in March 2015 although it is worth noting that Greece is not eligible to participate until July. The ECB needed time to negotiate with any new Greek government. More on Greece in a bit. What you might find surprising is that the very next day ECB member Benoit Coeure was already suggesting the ECB may need to do even more QE (QE2 anyone?) if the plan doesn't work. Josh Brown, with TheReformedBroker.com, noted that "The US needed three and a half rounds of QE over the course of 6 years and even now the benefits for the average worker or business are still debatable – despite how awesome all this stimulus has been for investors and large corporations. In Europe, it is even harder to create a wealth effect that transmits – Europeans have their retirements paid for by the government and so there is way less participation in the stock and bond markets by individual investors."

Meanwhile data out of Asia was not that great. Japan said their manufacturing PMI inched up from 52.0 to 52.1. Unfortunately their industrial production dropped -0.5% last month. China reported that its GDP rose +1.5% last quarter, which was below expectations. That puts the annual growth rate at +7.3%, which is the slowest pace of growth in 24 years. On the plus side Boqiang Lin, a Chinese energy economist, said China will save $100 billion on its oil import expenses in six months if crude oil prices stay near current levels (six-year lows).




Major Indices:

The S&P 500 saw a four-day rally before slipping lower on Friday. That puts its gain for the week at +1.6% and year to date the index is now only down -0.3%. The bad news is that the rally stalled right at its early January highs near 2,065. If the S&P 500 can rally then the next resistance level is the all-time high near 2,093 and what is probably round-number, psychological resistance at 2,100. Should stocks retreat lower then we can watch for support near 1,988 or the simple 200-dma near 1,970.

chart of the S&P 500 index:

The NASDAQ displayed relative strength last week with a +2.6% gain. That lifts the index into positive territory for the year with a +0.5% gain in 2015. The index managed to close just above short-term resistance at 4,750 but the NASDAQ might be due for a dip after rising five days in a row. If the rally continues then the recent highs near 4,812 are resistance. The nearest support appears to be the 4,550-4,565 area.

chart of the NASDAQ Composite index:

The small cap Russell 2000 managed a +1.0% gain last week. It's still down -1.3% for the year. The index appears to be range bound with support in the 1,150 area and resistance near 1,200 and 1,220. Fortunately the 1,150 area is supported by several key moving averages but that means a breakdown below this area would be pretty ominous.

chart of the Russell 2000 index



Economic Data & Event Calendar

This week will have two key economic events. The first FOMC meeting of 2015 is this week. The two-day meeting will end on Wednesday. The Fed is not expected to change interest rates. The focus will be on the Fed's statement and how much they change their economic forecasts. The next event is the U.S. Q4 GDP estimate. This is our first look at Q4 GDP. The consensus is currently estimating +3.0% growth, down from +4.9% in Q3. Right now Wall Street is pretty mixed on their Q4 outlook. There are some low estimates in the +2.0-2.5% range and some higher estimates in the +3.2-3.5% range.

Economic and Event Calendar

- Monday, January 26 -
(market reacts to Greek elections)

- Tuesday, January 27 -
Durable Goods Orders
New Home Sales data
Case-Shiller 20-city home price index
Consumer Confidence survey
FOMC meeting begins

- Wednesday, January 28 -
FOMC meeting ends, interest rate decision
Federal Reserve Policy Update

- Thursday, January 29 -
Pending home sales

- Friday, January 30 -
U.S. Q4 GDP estimate
Chicago PMI data
University of Michigan Consumer Sentiment (January)

Looking Ahead:

As we look ahead there is growing evidence that 2015 could be a bumpy ride for the stock market. Two weeks ago the World Bank cut their 2015 growth estimates. This past week the IMF joined in and reduced their 2015 global GDP forecast from +3.8% down to +3.5%.

We are in the middle of Q4 earnings season. Thus far only 179 companies have reported their results and about 60% have beaten Wall Street's earnings estimates. That's a little bit low. This coming week we will see 25% of the S&P 500 components report their Q4 earnings. Altogether, including non-S&P 500 companies, there will be over 450 corporate earnings reports released this week. One theme we could hear a lot of is how the rising U.S. dollar hurt sales overseas and how currency changes reduced margins. A few of the high-profile names to watch report earnings this week are Microsoft (MSFT) on Monday, Apple (AAPL) on Tuesday, Facebook (FB) on Wednesday, Amazon.com (AMZN), Alibaba (BABA), and Google (GOOG) all report on Thursday.

Saudi Arabia's New King

Another interesting development the markets digested last week was the death of Saudi Arabia's King Abdullah. After months of battling with pneumonia the king succumbed to his illness. He was 90 years old. His half-brother, 79-year old, Salman bin Abdulaziz, is the new king. Unfortunately Salman inherits the kingdom with several troubling issues. The country's archenemy Iran has seen significant growth in its political control of the region. ISIS is on Saudi's northern border with Iraq. ISIS-led rebels just took control of another neighbor in Yemen this past week. Economically Saudi's oil revenues have crashed with oil at six-year lows. All of this falls in the lap of a man that is widely reported as suffering with dementia. We could see more Iran-backed terrorists trying to take advantage of the political change in Saudi soon.

Greece Poised To Leave the Eurozone?

Sunday, January 25th is a big day for Europe all thanks to Greece. The very contentious elections took place today. Exit polls suggest the radical left-wing Syriza party is going to win. The question is how big of a win will it be? There are 300 seats in the Greek parliament. Syriza needs 151 to rule the country without having to form a coalition, which could be extremely tough to do. Right now it is estimated that Syriza has 35.5 to 39.5 percent of the vote. That's enough to give it 146 to 158 seats.

This is a serious challenge for the Eurozone. After five years of harsh austerity the Greece economy is in shambles and the people are fed up. The country has €320 billion in debt with about €240 of that from the massive, multi-year bailout. The Syriza party essentially ran its campaign on rejecting austerity, which will make negotiating with the Eurozone very unlikely. This would suggest Greece is poised to leave the Eurozone and shake the global markets. Should Syriza fail to reach the 151-seat necessary to govern alone they will have three days to build a coalition government. If they fail to find any allies then the country has to go through another election. One main problem is the late February deadline where Greece runs out of money and has to fulfill its obligations under current austerity rules to qualify for the next tranche of bailout funds.

The reality is that Greece, with a population of only 10 million people, is not that crucial to the global economy. The danger is if Greece does exit the euro, how will that effect the rest of the union? There are already several political parties throughout Europe that are clamoring to leave the Eurozone. If Greece's new government fails to work with the EU then they will either leave or be kicked out of the Eurozone. This will prompt a Greek bankruptcy. They'll most likely reissue the Greek drachma as their currency and quickly devalue it.

Ukraine

If Greece doesn't sink the global stock markets on Monday then Ukraine could pressure stocks lower. The fighting between Ukraine soldiers and Russian-backed rebels intensified last week. The United Nations said the conflict in Ukraine has surpassed 5,000 dead but the real number is probably a lot higher. The last ten days have seen fighting surge with the rebels on the offensive. The pro-Russian rebel leader, Alexander Zakharchenko, said he has no interest in peace talks with the Ukraine government. The Guardian ran an interesting article last week discussing the conundrum for Russia and its military dead. The families of Russian soldiers who died in Ukraine are pressuring the government. If a Russian soldier dies in action they are promised significant compensation of three million roubles plus an insurance payment of two million roubles, plus a monthly stipend. However, Russia is denying that any of its soldiers were in Ukraine and thus the relatives of these dead Russian soldiers are not entitled to any of this killed in action compensation. There are some reports of Russian soldiers refusing to right in Ukraine.

Map of Eastern Ukraine (by the BBC)

Market Outlook

The last couple of weeks I have been urging caution and suggested a short-term neutral outlook on the stock market. The first few weeks of January have been pretty volatile and it will likely continue this week as investors react to the Greece election news. In addition to Greece the Fed's outlook this week could also rattle the markets. All the major economies around the globe, China, Japan, and Europe, are slowing down. Japan and Europe are trying to stimulate their economies with QE and China is trying their own stimulus attempts but they don't appear to be working yet. Crude oil has crashed to six-year lows and is fueling significant deflationary pressure. It is widely believed that consumers would take the money they are saving at the gasoline pump and spend it elsewhere but thus far we are not seeing any significant evidence this is happening. Yet in spite of all of this the Fed appears to be on track to raise rates in about six months. That's why this week's fed meeting could be important. If the Fed says something that suggests they're going to postpone raising rates then U.S. stocks could rally.

~ James


P.S. I hope all of our readers in the New York City area stay warm and stay safe. The National Weather Service is forecasting a blizzard warning with snow starting on Monday morning that will turn into a blizzard by Monday afternoon.

You can read the warning at the weather.gov webpage





Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

Investors could get seasick with the market's big swings. After a five-day decline two weeks ago the S&P 500 just produced a four-day bounce before slipping lower on Friday.

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

I have updated stop losses on AAL, ANTM, CHL, and SBUX

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

Stocks Could See Another Rocky Week

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(January 25, 2015)

The market volatility continues. The only difference last week was the volatility saw stocks surge higher. The S&P 500 saw a four-day bounce before slipping lower on Friday. The NASDAQ produced a streak of five gains in a row.

One thing we can say about 2015 is that it hasn't been boring. Every week delivers a parade of potential market moving headlines. This past week was the ECB meeting and its new $1.2 trillion QE program. This week will start with the political upheaval in Greece and the radical left-wing Syriza party with a significant win. S&P futures are already down sharply in response to their apparent win. We still do not know if they won an outright majority of 151 seats or more (out of 300 parliament seats) or if they got less than 151 and will need to form a coalition government.

I have been suggesting a market neutral stance the last couple of weeks. I'm still longer-term bullish while short-term neutral tonight. We could see another rocky week and thus it's not the best environment to be launching new long-term trades.

Last week we did see AET graduate from our watch list to our active play list. Tonight I have added LOW as a new watch list candidate since shares were relatively resilient to the market's recent swings. I tried looking for stocks to buy on a market decline but it's not the right moment to try and pick a bottom (which is always a hazardous challenge to begin with).

No new plays tonight. I have updated my radar screen below. Many of these radar screen candidates will report earnings this week so they could be volatile.

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:

GLW, NKE, UA, STZ, AMBA, MSFT, COH, MU, PANW, BUD, IR, ATHN, FDS, COL, HD, ILMN, CELG, AVGO



Play Updates

Stocks Deliver First Weekly Gain of 2015

by James Brown

Click here to email James Brown

Editor's Note:

AET graduated from our watch list to our active play list below.


Closed Plays



None. No closed plays this week.




Play Updates


American Airlines Group - AAL - close: 55.69

Comments:
01/25/15: Airlines continued to rally. Oil falling to new six-year lows helped. We also saw Delta (DAL) report better than expected earnings. Southwest delivered record earnings. Expectations could be rising for AAL's report on January 27th. Remember, the stock could be volatile on the 28th as investors react to AAL's results. Tonight I am raising the stop loss to $47.75.

I am not suggesting new positions at this time.

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 $ 7.10/7.35

01/25/15 new stop @ 47.75
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: 47.75
Play Entered on: 12/30/14
Originally listed on the Watch List: 12/28/14


Apple Inc. - AAPL - close: 112.98

Comments:
01/25/15: AAPL rallied several points with a big bounce from support near $105 toward resistance near $113.00. I would not be surprised for shares to churn sideways from here until the company's earnings report on January 28th (Wednesday).

Expectations are pretty high for AAPL to deliver a blow out fourth quarter on massive iPhone sales. The question will be what sort of guidance the company gives. Thursday could be volatile for AAPL.

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 $ 9.25/ 9.45

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


Aetna Inc. - AET - close: 94.48

Comments:
01/25/15: The big healthcare names have continued to show relative strength. Many have hit new highs. AET is one of them with a breakout to all time highs. We had AET on our watch list with a plan to buy calls if shares closed above $93.00. AET met that requirement on January 21st with a close at $94.74. Our trade opened the next day with a gap open at $95.52. The stock is arguably short-term overbought here. Investors may want to wait for a dip near $93.00 since broken resistance near $92.00 should be new support.

More conservative investors may want to wait until after AET reports earnings on February 3rd and we see how the market reacts to the company's results before initiating new positions.

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.

01/18/15 Strategy Update: Instead of waiting for a dip we will look for AET to close above $93.00 and buy calls the next morning. We will adjust the stop loss to $84.90 and move the option strike from the 2016 January $90 call to the $100 call.

- Suggested Positions -
JAN 22, 2015 - entry price on AET @ 95.52, option @ 6.05
symbol: AET160115C100 2016 JAN $100 call - current bid/ask $ 6.20/6.75

01/22/15 Trade begins. AET gaps open higher at $95.52
01/21/15 AET closes at $94.74, above our trigger of $93.00.
01/18/15 Move the trigger to a close above $93.00 with a stop at $84.90 and use the 2016 January $100 call.
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

Chart

Current Target: To Be Determined
Current Stop loss: 84.90
Play Entered on: 01/22/15
Originally listed on the Watch List: 12/07/14


Anthem, Inc. - ANTM - close: 140.77

Comments:
01/25/15: ANTM is another healthcare stock that has been soaring to new highs in 2015. The stock rallied seven days in a row before finally seeing some profit taking on Friday. Shares are short-term overbought here. I would expect the pullback to continue.

Broken resistance near $130.00 should be new support. We will raise the stop loss from $122.45 to $126.75.

I am not suggesting new positions at this time.

FYI: ANTM has earnings coming up this week on January 28th and could see some profit taking after such a big pre-earnings rally.

Earlier Comments: January 11, 2015:
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.

- Suggested Positions -
JAN 16, 2015 - entry price on ANTM @ 133.75, option @ 11.40
symbol: ANTM160115C140 2016 JAN $140 call - current bid/ask $12.75/15.35

01/25/15 new stop loss @ 126.75
01/16/15 Trade begins. ANTM opens at $133.75
01/15/15 triggered. ANTM closed at $134.09, above our trigger of $132.00
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 126.75
Play Entered on: 01/16/15
Originally listed on the Watch List: 01/11/15


Checkpoint Software Tech. - CHKP - close: 80.06

Comments:
01/25/15: CHKP saw some volatility last week. Shares reacted to some analyst downgrades. CHKP remains inside its recent $77-82 trading range.

Earnings are coming up this week on January 29th. I am not suggesting new positions at this time. More conservative investors may want to use a higher stop loss.

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 $7.10/7.50
Stop loss @ 74.75 if you're trading the 2016s.

01/18/15 new stop @ 74.75
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: $67.06

Comments:
01/25/15: CHL was a big winner in last week's market rally with a $4.00 gain for the week. CHL has now broken out past its September 2014 high. The stock is now trading at levels not seen since mid 2008. We are raising the stop loss up to $59.50.

I am not suggesting new positions at the moment.

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 $4.50/5.00

01/25/15 new stop at $59.50
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: 59.50
Play Entered on: 11/11/14
Originally listed on the Watch List: 11/09/14


Cisco Systems - CSCO - close: 28.21

Comments:
01/25/15: On Thursday Piper Jaffray raised their price target on CSCO from $26 to $33. That helped shares rally from technical support at its 50-dma toward recent resistance. CSCO still has resistance in the $28.60 area. I'd like to see the stock close above this level before considering new bullish positions.

FYI: CSCO has earnings coming up on February 11th.

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 $1.33/1.39

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: $94.72

Comments:
01/25/15: Shares of DIS spent the holiday-shortened week trading sideways. The $90 level is support while $95-96 is resistance. If DIS does breakout higher then $100.00 is the level to watch since it could be round-number, psychological resistance.

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 $5.15/5.30

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



Humana Inc. - HUM - close: 151.47

Comments:
01/25/15: HUM is another big healthcare stock that hit new highs last week. Shares did see some profit taking on Friday. The $150.00 level should be short-term support but I wouldn't be surprised to see a dip closer to $145.00 if stocks retreat.

HUM has earnings coming up on February 4th. If you're looking for an entry point more conservative investors may want to wait until after we see how the market reacts to HUM's earnings.

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 $21.30/25.00

01/18/15 new stop @ 137.40
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: 137.40
Play Entered on: 10/22/14
Originally listed on the Watch List: 10/19/14


NXP Semiconductors - NXPI - close: 80.23

Comments:
01/25/15: NXPI added a couple of dollars last week. Shares look poised to breakout to new highs. I am urging caution here. This week could be volatile. NXPI supplies chips to Apple's iPhone 6 and AAPL reports earnings this week. AAPL's results could influence trading in NXPI, who doesn't report earnings until February 4th.

More conservative traders may want to raise their stop loss before AAPL reports earnings on January 27th.

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.

- Suggested Positions -
JAN 12, 2015 - entry price on NXPI @ 81.00, option @ 11.90
symbol:NXPI160115C85 2016 JAN $85 call - current bid/ask $ 8.70/10.70

01/25/15 NXPI shares could react to AAPL's earnings this week. Expect some volatility
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

Current Target: NXPI @ TBD
Current Stop loss: 69.75
Play Entered on: 01/12/15
Originally listed on the Watch List: 01/04/15


Restoration Hardware - RH - close: 91.63

Comments:
01/25/15: RH spent the week churning sideways between support at its rising 50-dma and resistance at its falling 10-dma. I expect the sideways trading to continue until RH reports earnings this week on January 29th (Thursday).

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 $13.50/16.50

01/16/15 RH has now filled the gap and started to bounce
12/21/14 More conservative investors may want to raise their stop close to support near $92.50. We are leaving our stop at $84.85 for now.
12/14/14 new stop at $84.85
12/11/14 RH gaps higher after reporting earnings the night before. 12/07/14 Caution! RH announced they will report earnings on Dec. 10th
11/21/14 trade begins. RH gaps higher at $88.93
11/20/14 triggered with a close at $87.48, above our trigger at $84.25
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

Current Target: RH @ TBD
Current Stop loss: 84.85
Play Entered on: 11/21/14
Originally listed on the Watch List: 11/16/14


Raytheon Co. - RTN - close: $106.80

Comments:
01/25/15: RTN slowly drifted higher last week. The stock appears to be sandwiched between support near $105 and its three-week bearish trend of lower highs. Odds are good that RTN will trade sideways between now and its earnings report on January 29th (Thursday).

I am not suggesting new positions at the moment.

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

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

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

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

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

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

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

- Suggested Positions -
NOV 25, 2014 - entry price on RTN @ 106.52, option @ 4.85
symbol: RTN160115C115 2016 JAN $115 call - current bid/ask $ 4.30/4.55

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: 88.22

Comments:
01/25/15: SBUX has rallied more than +10% in the last five sessions. Most of that was Friday's +6.6% gain thanks to better than expected earnings.

The company reported earnings on January 22nd, after the closing bell. Actually results were only inline with expectations with a profit of $0.80 a share. Revenues were up +13.3% to $4.8 billion, also meeting expectations. Management issued bearish guidance for the current quarter (Q2 for SBUX) but reaffirmed their 2015 guidance of earnings in the $3.09-3.13 range. That includes revenue growth in the +16-18% range and suggests revenues above Wall Street estimates.

The company said same-store sales surged +5% last quarter compared to +1% growth a year ago. Their gift card sales during the holiday season exploded with almost 1 out of every 7 Americans receiving a SBUX gift card for the holidays. They sold more than 2.6 million cards in one day (Dec. 23rd).

The company plans to open another 1,650 new stores in 2015. They're forecasting worldwide same-store sales growth in the mind-single digits. They have been successfully adding to their food products and alcohol at select locations. These program will be slowly expanded throughout the SBUX empire. They've also had success with customers using their smartphones to buy drinks online, which is another program that will be expanding this year.

Several analyst firms reiterated their outperform ratings on the stock following the earnings report and a few were raising their price targets. After Friday's +6.6% surge the stock is short-term overbought and I would expect some profit taking.

We are raising the stop loss to $79.65.

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 $ 5.40/6.30

01/25/15 new stop loss @ 79.65
12/15/14 triggered at $82.00
Option Format: symbol-year-month-day-call-strike

Current Target: RTN @ TBD
Current Stop loss: 79.65
Play Entered on: 12/15/14
Originally listed on the Watch List: 12/07/14


Toyota Motor Corp. - TM - close: 129.66

Comments:
01/25/15: TM has extended its current rally to three up weeks in a row. Unfortunately we did see the rally slow down last week with TM struggling with resistance near $130. Shares have been churning sideways in the $128-130 zone.

I am not suggesting new positions at this time.

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

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

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

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

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

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

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

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

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

- Suggested Positions -
DEC 02, 2014 - entry price on TM @ 126.56, option @ 8.75
symbol: TM160115C130 2016 JAN $130 call - current bid/ask $ 8.35/ 9.50

12/07/14 new stop @ $119.00
12/02/14 trade begins. TM opens at $126.56
12/01/14 trade is triggered. TM closes at $124.94, above our 124.00 trigger
Option Format: symbol-year-month-day-call-strike

Current Target: TM @ TBD
Current Stop loss: 119.00
Play Entered on: 12/02/14

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


Wal-Mart Stores Inc. - WMT - close: 88.51

Comments:
01/25/15: So far so good with our WMT trade. Shares bounced near $85.50 last week and stock delivered a decent rebound. We did get a close above $88.10 so I would consider new positions here.

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.

UPDATE: 01/11/15 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.

- Suggested Positions -
JAN 14, 2015 - entry price on WMT @ 87.50, option @ 3.97
symbol: WMT160115C90 2016 JAN $90 call - current bid/ask $ 4.15/4.30

01/14/15 triggered @ 87.50
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

Current Target: WMT @ TBD
Current Stop loss: 81.90
Play Entered on: 01/14/15
Originally listed on the Watch List: 12/14/14




Watch

Gearing Up For Spring

by James Brown

Click here to email James Brown


New Watch List Entries

LOW - Lowes Companies


Active Watch List Candidates

ESRX - Express Scripts

FDX - FedEx Corp.

ITB - U.S. Home Construction ETF

LMT - Lockheed Martin

LVLT - Level 3 Communications

MAR - Marriott Intl.


Dropped Watch List Entries

AET graduated to our active play list.



New Watch List Candidates:

Lowe's Companies - LOW - close: 69.71

Company Info

LOW is the second biggest player in the home improvement retail business. Their main rival is Home Depot. LOW currently has more than 1,800 stores across the United States, Canada, and Mexico.

The stock has been a great performer the last couple of years, significantly outperforming the broader market. Their most recent earnings report was November 19th and results were one cent above expectations with a profit of $0.59 a share. Revenues also beat expectations with +5.6% growth to $13.68 billion. Same-store sales were up +5.1%.

Management issued bullish guidance for 2015 and raised their earnings estimate above Wall Street's forecast. LOW also raised their revenue guidance above analysts' estimates. The company expects revenues to grow +4.5% to 5% in 2015 with same-store sales growth in the +3.5% to 4% range.

The stock is often influenced by trading and news out of the homebuilders. This year there have been a couple of bombs in the homebuilding industry with both KBH and LEN warning on potential margin pressures in 2015. Shares of LOW, a retailer, shrugged off this headlines.

The U.S. economy grew +4.9% in the third quarter last year and is expected to grow about +3% in 2015. The slow and steady improvement in the U.S. economy is a tailwind for LOW. Another bonus is low gas prices. While we have not seen a lot of evidence that consumers are spending their savings at the pump eventually that money, amounting to hundreds of dollars a year for the average driver, will be spent. Americans love to spend money on their homes, which is bullish for LOW.

We are quickly approaching the spring residential real estate selling season. That means consumers will be spending money on fixing up their homes to go on the market. Those people who buy a home will spend money on their new purchase.

Technically LOW's stock has been consolidating sideways between support near $65 and resistance near $70 the last few weeks. The point & figure chart has already produced a new triple-top breakout buy signal with a $75 target (that could grow). Tonight I am suggesting we wait for LOW to close above $70.75 and then buy calls the next morning with a stop loss at $64.90.

Breakout trigger: Wait for LOW to close above $70.75,
Then buy calls the next morning with a stop at $64.90

BUY the 2016 Jan $80 call (LOW160115c80) current ask $2.37

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

Chart of LOW:

Weekly Chart of LOW:

Originally listed on the Watch List: 01/25/15


Active Watch List Candidates:



Express Scripts - ESRX - close: 84.80

Comments:
01/25/15: Shares of ESRX were downgraded on Tuesday and spent the rest of the week trying to recover. The stock has been stuck in an $82.50-85.50 trading range the last several days. There is no change from last week's comments.

Earlier Comments: January 18, 2015:
If ESRX is good enough for Buffett is it good enough for you?

According to the company's marketing material, "Express Scripts (ESRX) manages more than a billion prescriptions each year for tens of millions of patients. On behalf of our clients – employers, health plans, unions and government health programs – we make the use of prescription drugs safer and more affordable. Express Scripts uniquely combines three capabilities – behavioral sciences, clinical specialization and actionable data – to create Health Decision Science(SM), our innovative approach to help individuals make the best drug choices, pharmacy choices and health choices. Better decisions mean healthier outcomes.

Headquartered in St. Louis, Express Scripts provides integrated pharmacy benefit management services, including network-pharmacy claims processing, home delivery, specialty benefit management, benefit-design consultation, drug-utilization review, formulary management, and medical and drug data analysis services. The company also distributes a full range of biopharmaceutical products and provides extensive cost-management and patient-care services."

In November 2014 there were a number of headlines about Warren Buffett's Berkshire Hathaway initiating a 449,000 share stake in ESRX. The Oracle of Omaha has a significant following so this definitely drew additional investor attention to ESRX.

More recently ESRX was making headlines when it announced a deal with AbbVie. One of the big stories last year in the biotech space was the price of Gilead Sciences (GILD) price for its cure to hepatitis C. It was big headlines when a congressman questioned GILD's $84,000 price target for their hep C treatment. AbbVie (ABBV) was given FDA approval for their hepatitis C cure in December. They also priced their 12-week treatment around $84K. Everyone was surprised when ESRX announced they would exclusively use ABBV's treatment in their prescription plans in exchange for a significant price discount from ABBV. Shares of GILD naturally dropped on this news but it makes smart business sense for ESRX who is trying to reduce their expenses.

Technically shares of ESRX are bullish with a trend of higher lows. Right now the stock has been consolidating sideways the last few weeks but it looks poised to breakout higher. Tonight I am suggesting we wait for ESRX to close above $86.75 and then buy calls the next morning with a stop loss at $81.75.

FYI: ESRX is scheduled to report earnings on February 23rd.

Breakout trigger: Wait for ESRX to close above $86.75
Then buy calls the next morning with a stop at $81.75.

BUY the 2016 Jan $95 call (ESRX160115c95)

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

Originally listed on the Watch List: 01/18/15


Fedex Corp. - FDX - close: 176.01

Comments:
01/25/15: FDX almost hit our entry trigger on Friday thanks to UPS' warning. Shares of FDX had rallied several days in a row but Friday morning saw its main rival, UPS, issue a profit warning. UPS said they spent too much money ramping up for the 2014 holiday season to avoid the problems they had back in 2013. Shares of UPS plunged -9.9% on Friday while FDX sank -2.9% in sympathy.

If FDX sees any follow through on Monday we could see it hit our buy-the-dip trigger at $175.00.

Earlier Comments: January 18, 2015:
FDX is part of the services sector. They're one of the largest air delivery and freight delivery service providers in the world. They have 62,000 vehicles and 370 service centers around the globe.

The stock was a strong performer last year with a +20% gain, outpacing the major market indices. Recently a few Wall Street analysts have turned increasingly bullish on FDX. The global economy might be slowing but the U.S. continues to see economic improvement. At the same time gasoline prices have crashed and this is a favorable environment for shipping companies where fuel is a major expensive.

It's a new year and both UPS and FDX have raised their prices by 5%. FDX has also started charging customers with their new dimensional pricing strategy. That means the size of the package in addition to the weight determines the price to ship it. This is specifically targeting online shippers who have shipping small light weight items in big bulky boxes. The industry is calling this new system dim weight pricing and it should boost revenues for FDX.

Shares of FDX found support near $170 multiple times this January. Friday's breakout past several moving averages looks bullish. The stock has also broken the six-week trend of lower highs. However, instead of chasing FDX here, after a $10 rally, I am suggesting we buy calls on a dip.

Tonight I'm suggesting a buy-the-dip trigger at $175.00 with a stop loss at $168.00.

Buy A Dip at $175.00 with a stop loss at $168.00

BUY the 2016 Jan $200 call (FDX160115c200) current ask $6.90

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

Originally listed on the Watch List: 01/18/15


iShares US Home Construction ETF - ITB - close: 24.82

Comments:
01/25/15: The ITB struggled to rebound last week. I'll give it one more week. If shares don't see some improvement soon we'll remove it as a watch list candidate.

Earlier Comments: January 11, 2015:
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)

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

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


Lockheed Martin - LMT - close: 197.44

Comments:
01/25/15: This could be an interesting week for LMT. The company is scheduled to report earnings on January 27th (Tuesday). Results are released before the open so it could be a wild day on Tuesday. We want to see shares close above $201.00 before initiating positions. Tonight I am putting a no-entry rule on this trade. If LMT spikes too high we don't want to launch positions if LMT closes above $204.00. That gives us a $201-204 window to open positions.

Earlier Comments: January 18, 2015:
Defense stocks have delivered exceptional gains for investors in spite of the dreaded sequestration budget cuts from Budget Control Act of 2011. Granted the cuts have been delayed and adjusted many times but it still put a crimp in U.S. government defense spending. In response many of America's biggest defense contractors have focused on building up their international business instead of relying on the U.S.

LMT is one such defense contractor. According to a company press release, " Headquartered in Bethesda, Maryland, Lockheed Martin is a global security and aerospace company that employs approximately 113,000 people worldwide and is principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services. The Corporation's net sales for 2013 were $45.4 billion."

Right now one of their biggest projects is the massive F-35 Joint Strike Fighter system. It's the most expensive weapons system the U.S. has ever built with an estimated cost of over $1 trillion over its 50-year lifespan.

If you haven't noticed the world seems to be getting more dangerous. The U.S. is facing a growing military rivalry with China, a belligerent and dangerous Russia, and war in the Middle East with ISIS. This sort of environment will likely keep investors focused on defense stocks.

Looking at LMT's earnings results they have beaten Wall Street's estimates for the last four reports in a row. They raised their guidance in two of the last four earnings reports. The rally in the stock has created a buy signal on the point & figure chart with a $240 target. Currently shares are consolidating sideways and appear to be building up steam for a breakout past round-number resistance at $200. I suspect that LMT's earnings on January 27th might be the catalyst needed to push shares higher.

Tonight I am suggesting we wait for LMT to close above $201.00 and then buy calls the next morning with a stop loss at $189.00.

Breakout trigger: Wait for a close above $201.00
Then buy calls the next morning with a stop at $189.00

PLEASE note the new "no-entry" rule above, If LMT spikes and closes above $204.00, then no entry.

BUY the 2016 Jan $220 call (LMT160115c220)

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

Originally listed on the Watch List: 01/18/15


Level 3 Communications - LVLT - close: 49.94

Comments:
01/25/15: LVLT delivered a nice rally last week. Shares surged toward resistance near $50 and then stalled. We are waiting on a breakout. The plan is to buy calls if LVLT can close above $50.50.

Keep in mind that LVLT is scheduled to report earnings on February 4th and more conservative investors may want to wait until after LVLT reports earnings before considering new positions.

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: 78.51

Comments:
01/25/15: Shares of MAR seemed to lag behind the rest of the market last week. It had one good day with Thursday's rally. The stock remains below resistance in the $79-80 zone. Currently the plan is to buy calls after MAR closes above $80.25.

FYI: Earnings are coming up on February 18th.

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