Option Investor
Newsletter

Daily Newsletter, Sunday, 2/1/2015

Table of Contents

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

Leaps Trader Commentary

January Sets A Bearish Tone

by James Brown

Click here to email James Brown

The Stock Trader's Almanac January indicator is now negative for the second year in a row. That doesn't bode well for the bulls but stocks managed to shake off this bearish signal last year. The U.S. market appears to have a serious case of indigestion as it tries to stomach another round of disappointing economic data and growing concerns that Greece could be headed for an Eurozone exit. Stocks ended the month of January with losses, marking the first time the S&P 500 has seen two down months in a row since 2012.

The U.S. dollar's rally stalled last week snapping a six-week winning streak against its peers. This dip in the dollar allowed oil to bounce and crude oil surged +5.2%. Precious metals did not bounce with gold down -0.7% and silver plunging -5.6% on the week. On January 27th the price of gasoline finally bounced. Inside the U.S. the price of gas had fallen 123 days in a row. That streak of declines was an all-time record.

Money flowed out of U.S. stocks and into the safety of bonds. The yield on the U.S. 10-year bond closed at new 52-week lows at 1.67%. The rally in the 30-year note accelerated. Yields on a U.S. 30-year bond ended the week at 2.25%. I've seen this labeled as both a 65-year low and also as the lowest close in history. Wall Street tends to think that bond investors are smarter than stock investors and if money is rushing into bonds that doesn't bode well for stocks. Although to be fair that simplistic idea that a rally in bonds is bad for stocks does not hold up over long periods of time.

Chart of the U.S. 10-year Bond Yield

Chart of the U.S. 30-year Bond Yield

Economic Data

There were a number of economic reports last week. The Chicago PMI data came in better than expected with a jump from 58.8 in December to 59.4 in January. Unfortunately the Dallas Fed manufacturing survey came in worse than expected with a drop to -4.4 when analysts were looking for a reading near 3. Numbers above 50 suggest growth in the PMI data and below zero the Dallas survey suggests contraction. Durable goods orders came in worse than expected. November's durable goods orders were revised lower from -0.9% to -2.1%. December's reading came in at -3.4%.

There were a number of data points on housing. Pending home sales soured with a -3.7% month over month drop. Yet new home sales soared +11.6% in December to an annual pace of 481,000. That's the best reading since mid 2008. The Case-Shiller 20-city Home Price Index reported a +4.3% increase for November. That probably has homeowners feeling good about their personal wealth. Rising home prices and plunging gasoline prices probably played a role in the University of Michigan Consumer Sentiment survey hitting an 11-year high with an improvement from 93.6 in December to 98.1 in January. Another positive data point was the weekly jobless claims, which crashed -43,000 to 265,000. That's the lowest weekly result since the year 2000.

We did just have a two-day FOMC meeting. The Fed's statement said they felt the U.S. economy's growth was "solid" and that sounds like an improvement from their previous term of "moderate" growth. They also pledged again to be patient before raising interest rates. Many believe this "patient" language suggest any rise in interest rates is at least two meetings away.

The first estimate on U.S. GDP growth in the fourth quarter was a disappointment. 2014's Q3 GDP growth was a stunning +4.9%. Economists were expecting the pace of Q4 growth to slow down into the +3.0% range. Unfortunately last week's data showed Q4 GDP at only +2.6%, virtually half of the prior quarter. The full year 2014 GDP growth comes in at +2.4%, which is up from 2013's +2.2% growth.

Overseas Economic Data

Overseas economic data was also disappointing largely due to worrisome deflation numbers. Denmark's central bank is in panic mode. They just cut their deposit rate for the third time in two weeks. The latest move adjusted the deposit rate from minus 0.35% to minus 0.5%. This means that banks have to pay the Danish central bank 0.5% to keep their money there. The country faces a challenge now that the European Central Bank (ECB) has announced a QE program the euro has been falling against the Danish krone. Denmark is trying to keep the euro/kroner exchange rate within 2.25% on either side of 7.46038 kroner to the euro. They do not want their krone to get too strong. How long they can keep this up is a good guess. In January we just saw the forex markets explode when Switzerland gave up on trying to peg their Swiss franc to a specific exchange rate against the euro.

Germany, Europe's largest economy, just saw its inflation rate turn negative with a -0.3% monthly decline. That hasn't happened since 2009. The wider Eurozone saw their consumer price index (CPI) data drop -0.6%, which was worse than expected and sharply lower from the prior reading of -0.2%. Accelerating deflation is bad news for the entire region and it looks like the ECB is once again behind the curve. Europe has been trying to avoid the deflation monster for years and it looks like it has finally caught up to them.

In other news the Eurozone saw their unemployment rate inch down from 11.5% to 11.4%. The Eurozone business and consumer survey improved from 100.6 to 101.2. European stocks delivered their best one-month performance since 2011. The rally in stocks is not a surprise given the ECB's historic QE program announced in January. U.S. stocks have enjoyed years of QE fueled market gains. Now it might be Europe's turn.

Data out of Asia was relatively quiet. Japan said their industrial production rose +1.0% after a -0.5% the month before. Japan's unemployment improved from 3.5% to 3.4%. Meanwhile there appears to be growing speculation that China will reduce its annual growth forecast from 7.5% down to 7.0%. The country is already growing at its slowest pace in 24 years. A slowing China and a slowing Europe are going to make it really tough on the U.S. to keep its economic expansion going.




Major Indices:

It was a rough week for the S&P 500 index with a -2.7% decline. That capped its worst monthly decline in a row. As I mentioned earlier the S&P 500 just produced its first back to back monthly declines since 2012. On the weekly chart you can see that its down four out of the last five weeks.

The 1,985-1,990 area is short-term support. Below that the December lows near 1,972 might be support but I doubt it. I suspect that if the S&P 500 closes below 1,970 it's probably headed for the 1,900 area. Should the market see a correction then a -10% pullback from the 2,090 closing high would be about 1,880.

chart of the S&P 500 index:

Weekly chart of the S&P 500 index

The NASDAQ suffered a -2.5% pullback last week. Year to date the index is down about -2.1% versus the S&P 500's -3.1% decline. Fortunately the NASDAQ still has support in the 4,550 area. Should this level break I would expect the next level of support near 4,400.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index only lost -1.9% for the week, which means it held up better than its big cap rivals. Year to date the $RUT is down -3.4%. The index appears to be churning between support near 1,150 (underpinned by its simple 200-dma) and resistance near 1,200.

A breakdown under 1,150 would probably signal a drop toward the December low around 1,135. Below that the next level of support would be around the 1,082 lows the $RUT saw in mid 2014.

chart of the Russell 2000 index



Economic Data & Event Calendar

It's the first week of a new month and that means lots of economic data. After the disappointing Q4 GDP number people might be watching the ISM index for clues how the country performed in January. The ADP report on Wednesday will be a prelude to Friday's jobs report.

We're also deep in the middle of Q4 earnings season. More than 100 companies in the S&P 500 will report earnings this week.

Economic and Event Calendar

- Monday, February 02 -
Personal income and spending
ISM index
Eurozone PMI data

- Tuesday, February 03 -
Factory orders
Auto & truck sales

- Wednesday, February 04 -
ADP Employment Change Report
ISM services

- Thursday, February 05 -
German factory orders

- Friday, February 06 -
Nonfarm payrolls (jobs) report
Unemployment rate

Looking Ahead:

Speaking of earnings there has been an interesting divergence. Currently almost 80% of the S&P 500 companies that have reported earnings have beaten Wall Street's estimates on the bottom line. That's higher than normal and massive corporate stock buybacks might be the reason why (fewer shares outstanding boost your profit per share). Only about 58% of companies that have reported have managed to beat estimates on the revenue side.

Of course earnings data is looking in the rearview mirror. Wall Street wants to hear corporate guidance. Unfortunately about 80% of companies have issued negative or disappointing guidance for the first quarter. This is significantly above normal. Not surprisingly with the U.S. dollar near 11-year highs a lot of companies are blaming the dollar for hurting profits and they believe currency headwinds will continue to hurt in the Q1 2015.

Wall Street's outlook on earnings growth has plunged. Two months ago analysts were expecting Q1 earnings growth of +8.6% (five months ago it was +9.9%). Now, after a wave of negative earnings guidance, analysts are actually expecting Q1 earnings growth to be negative 0.2% (another firm is forecasting -1.6% earnings decline). Not surprisingly a lot of this earnings weakness is coming from the oil industry. Last fall analysts were expecting energy companies to show +3.3% earnings growth in Q1. Today that estimate has crashed to -53.8%.

The U.S. Federal Reserve faces a conundrum. They want to raise rates. However, if they do raise rates the U.S. dollar will rise even further which will hurt U.S. corporate profits even more (half of S&P 500 company revenues come from overseas). Pushing the dollar higher will further depress commodities (already crashing), which will only generate more deflationary pressures.

A good example of the lack of economic growth and falling demand for commodities is the Baltic Dry Index. The BDI measures shipping rates to rent a cargo ship that typically carries metals, grains, and fossil fuels. This can be used as a leading indicator since for global economic growth. Today the Baltic Dry Index is down to 26-year lows.

Chart of the Baltic

Earlier I mentioned how the stock market just produced a bearish January indicator. This signal was first noted back in the early 1970s by Yale Hirsh, the publisher of the Stock Trader's Almanac. Essentially if the S&P 500 is negative for the month of January then the entire year will end up negative. Hence the saying, "so goes January, so goes the year." Since 1950 there have been eight times this indicator did not work giving it a 87.7% accuracy in predicting the year's success (positive or negative for the year). Last year January was negative but the S&P 500 delivered a +11% gain for the year.

I wouldn't get too upset about this one signal. Late last year the team at Stock Trader's Almanac were forecasting 2015 could very bullish. The combination of where we fall in the presidential election cycle, and years ending in the number 5, and other arcane stock market trivia all indicate 2015 should have a positive undercurrent to it. I suggest we take all of these forecasting signals with a grain of salt.

My market outlook hasn't changed. The last few weeks I've been neutral while bullish for the year in general. A massive QE program in Europe should be bullish but it will have a tougher job to succeed than the QE programs in the U.S. thanks to the composition of the European Union. Greece remains a thorn in the market's paw and will probably get a lot worse before it gets better. The Q4 GDP number suggest the U.S. is not as strong as we had hoped. The globe is starting to see deflationary pressures accelerate. On top of everything the overwhelming trend in corporate earnings guidance has been too cautious. We could be setting up for a market correction. As long-term LEAPS traders we can use any market correction as a bullish entry point but we have to be patient and wait for the right time to jump in.

~ James







Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The U.S. stock market is not off to a very good start in 2015. Year to date the S&P 500 is already down -1.8%. Last week's market decline was very widespread. Investors seemed to be selling everything on Friday.

If this market weakness continues I'm worried we could see a cascade of stop losses being hit, including our own.

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

RTN hit our stop loss.

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 Look Fragile

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(February 01, 2015)

I looked at a lot of stocks this weekend. The market looks relatively fragile right now and quite a few stocks look downright ugly.

Investors seem to be having a hard time digesting all the negative data points. Europe and Asia are slowing down. Yes, it's true that Japan and now Europe have launched massive QE programs to try and stimulate their economies and avoid deflation. Unfortunately, it doesn't seem to be working yet in Japan and the ECB's program doesn't start until March. In the meantime deflation seems to be accelerating, especially in Europe. If that wasn't enough the new Greek government seems to have no intention of cooperating with its European creditors. We could see Greece leave the Eurozone this year.

We've been highlighting the rising dollar for a long time. Many of the S&P 500 companies do a lot of business overseas. The super sharp rally in the U.S. dollar is having a negative impact on U.S. profits. This trend will likely continue. The vast majority of corporations providing forward guidance have delivered bearish or disappointing guidance. That doesn't bode well.

We just saw Q4 GDP come in at +2.6% versus +4.9% in Q3. If companies are warning about the rest of 2015, what's going to happen to U.S. GDP? Are we headed for another recession? What happens when the Federal Reserve raises rates? If Greece leaves the Eurozone, who is next? These are some of the concerns that could be driving investor money into bonds instead of stocks.

The market could be setting up for another correction lower. I considered adding some buy-the-dip candidates to the watch list but the problem is that stocks almost always overshoot to the downside. Our recent Fedex (FDX) candidate is a good example. The good news it that another steep sell-off could provide us a much better entry point as we look toward the rest of 2015.

No new trades tonight.



Play Updates

Bulls Suffer A Rough Week

by James Brown

Click here to email James Brown

Editor's Note:

FDX graduated from our watch list to our play list.


Closed Plays


RTN hit our stop loss.



Play Updates


American Airlines Group - AAL - close: 49.08

Comments:
02/01/15: AAL reported earnings on Jan. 27th. Results were $1.52 a share, which was one cent above expectations. Revenues were up +2.1% to $10.16 billion, just a hair below estimates. The company also announced another $2 billion stock buyback program. Unfortunately these results were not good enough for the market and AAL reversed from multi-year highs. The market's widespread decline last week only added to AAL's pain. Shares have now broken down below what should have been support at $50.00 and its 50-dma. If this sell-off continues and we see AAL break down below its January lows we could be stopped out at $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 $ 4.40/4.80

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: 117.16

Comments:
02/01/15: AAPL was a major story for the stock market last week. The company reported earnings on Jan. 27th. Wall Street was expecting a profit of $2.60 a share on revenues of $67.5 billion. AAPL blew those estimates away with a profit of $3.06 per share. Revenues were up +29.5% to $74.6 billion. Gross margins came in above expectations at 39.9%.

The company sold 74.5 million iPhones in their first quarter (calendar Q4). Analysts were expecting an increase from 51 million a year ago to 66.8 million iphones (sold in one quarter). Ipad sales declined from a year ago while Mac sales rose from 4.8 million to 5.5 million.

There were tons of stories about just how big AAPL's quarter was. I believe someone called AAPL's $18 billion profit for the quarter the biggest corporate profit in history but I can't seem to find that quote. It was pretty mind blowing. AAPL sold 34,000 iPhones per hour during the quarter.

That one quarter's profit is bigger than many countries gross domestic profit. It also boosts AAPL's cash hoard to $178 billion. With that much cash AAPL could buy any of the bottom 483 out of the S&P 500 companies. Someone joked AAPL has enough cash to give every person in America $556. Or they could make a big splash in social media and buy Twitter, LinkedIn, Snapchat, and Pinterest for a grand total of $66 billion.

The stock shot higher and tested resistance near $120 by week's end. The question now is will AAPL see a post-earnings decline? Is all the momentum out of the stock? Or will last quarter's performance fuel more investor enthusiasm for AAPL?

I'm not suggesting new positions tonight merely based on the broader market's weakness. If shares do pullback the $105-114 zone should offer some sort of support while $120 is the resistance to watch.

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 $11.30/11.50

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: 91.82

Comments:
02/01/15: After showing relative strength most of the month shares of AET hit some profit taking last week. The stock should find support near $90.00. However, earnings are coming up and shares could be volatile following the announcement.

AET is scheduled to report on February 3rd. Wall Street expects a profit of $1.22 a share.

I am not suggesting new positions at this time.

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 $ 5.50/5.75

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

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: 134.96

Comments:
02/01/15: ANTM is another healthcare name that witnessed some profit taking last week. The company reported earnings on Jan. 28th. ANTM delivered a profit of $1.73 per share. That missed estimates by one cent. Revenues were up +6.4% to $18.78 billion, which also missed expectations. However, ANTM offered bullish guidance for 2015 and sees earnings coming in above Wall Street estimates. Several analysts firms upgraded their price target on ANTM following the report with new targets in the $150-160 range.

The stock looks like it's headed for support near $130. I am suggesting investors wait for a dip or better yet a bounce near $130.00 as our next entry point.

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 $ 9.25/11.95

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: 77.17

Comments:
02/01/15: Our CHKP trade could be in trouble. The company reported earnings on Jan. 29th. Results were $1.07 a share on revenues of $420.6 million. Both numbers beat estimates. Management announced a big increase to their stock buyback program. Shares of CHKP initially spiked on this news but the rally failed under resistance near $81.00.

Now CHKP appears to be correcting lower. The breakdown under its simple 50-dma is short-term bearish. The next support level is $75.00 and our stop loss is at $74.75. I am 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 $5.40/5.70
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: $65.32

Comments:
02/01/15: CHL snapped a three-week winning streak with last week's decline. Fortunately shares spent most of the week consolidating sideways. The $65.00 level is short-term support. Below that the $60.00 level should also be support.

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 $3.90/4.20

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: 26.36

Comments:
02/01/15: Ouch! It was an ugly week for CSCO. Actually investors were not happy with big cap technology stocks in general. Shares of CSCO are now down five out of the last six sessions. Shares are approaching what should be support at $26.00. Our stop loss is at $25.75. I am not suggesting new positions at this time.

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 $0.84/0.89

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: $90.96

Comments:
02/01/15: DIS was not immune to the market's sell-off last week. Wednesday and Friday were the two big down days and shares closed on its 100-dma. The $90 level should be support along with additional support at its 200-dma near $88.00. However, DIS could be volatile following its earnings report. DIS reports on February 3rd, after the closing bell. Analysts are expecting a profit of $1.07 a share.

I am not suggesting new positions at this time.

Earlier Comments: November 9, 2014:
DIS is considered a diversified entertainment company. The company with its subsidiaries is an international family entertainment giant. Their media networks division includes the Disney/ABC Television Group and ESPN Inc. Their Parks and Resorts business runs 11 theme parks and 44 resorts. Their studio business has been making movies for over 90 years. Their acquisition of Marvel Studios was a genius move and they recently purchased Lucasfilm which brought the Star Wars franchise into Disney's stable of intellectual property. DIS' consumer products division makes everything from toys to books to fine art based on their massive library of content and characters.

The company has been a consistent winner in the earnings camp. DIS beat Wall Street's earnings estimates the last four quarters in a row. They've beaten on both the top and bottom line the last three quarters in a row. Their most recent earnings report was November 6th, which was DIS' fourth quarter result for 2014. According to DIS' CEO their fiscal 2014 was another record setting year for profits and marked their fourth year in a row of record performances.

DIS's results last year were driven by the studio division, which saw operating profits more than double. The company has seriously been knocking it out of the park with their movies. 2013 had some pretty big hits but Frozen, which came out n November 2013, is one of the biggest animated movies of all time and helped drive results well into 2014. Other big winners for the studio division were Capitan America: Winter Soldier, Maleficent, and the hit of the summer Guardians of the Galaxy. This weekend DIS' new animated movie Big Hero Six is already beating the competition and outpaced Interstellar in their opening weekend.

Next year should be another banner year for DIS' studio division with blockbusters like the next Avenger's movie, another Pixar film, and the next chapter in the Star Wars saga, episode seven (comes out in December 2015). All of these films help fuel business for Disney's theme parks, consumer products, and video games.

Wall Street was looking for DIS to report their Q4 earnings of $0.88 on revenues of $12.37 billion. The company beat estimates with a profit of $0.89 (+12%) and revenues rising +7.1% to $12.39 billion. Looking back over 2014 DIS said their earnings results were up 26% above 2013.

The stock is only a couple of points from all-time highs and the point & figure chart is bullish with a $119 long-term target. We recently concluded a successful trade on DIS back in October. We would like to hop on board again if shares can breakout past resistance at the $92 level.

Tonight I am suggesting a trigger to buy calls if DIS can close above $92.25. We'll start with a stop loss at $87.25.

- Suggested Positions -
DEC 01, 2014 - entry price on DIS @ 92.63, option @ 5.00
symbol: DIS160115C100 2016 JAN $100 call - current bid/ask $4.15/4.35

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



Fedex Corp. - FDX - close: 169.11

Comments:
02/01/15: FDX is down about $7.00 for the week. We were expecting a pullback but that was more than we bargained for. Two weeks ago UPS issued an earnings warning that rattled the market and definitely hit the transport stocks. UPS has continued to sink since its warning and FDX is following it lower.

We had FDX on our watch list with a buy-the-dip trigger to buy calls at $175.00. FDX hit our entry on January 27th. Unfortunately the market's broad-based sell-off has accelerated. Now shares of FDX are flirting with a breakdown below support in the $169-170 area. The intraday low on Friday was $168.88 and our stop loss is at $168.00. If FDX sees any follow through on Monday we could be stopped out.

I am not suggesting new positions at this time.

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.

- Suggested Positions -
JAN 27, 2015 - entry price on FDX @ 175.00, option @ 6.90
symbol: FDX160115C200 2016 JAN $200 call - current bid/ask $5.25/5.60

01/27/15 FDX hits our buy-the-dip trigger at $175.00
Option Format: symbol-year-month-day-call-strike

Chart

Current Target: FDX @ TBD
Current Stop loss: 168.00
Play Entered on: 01/27/15
Originally listed on the Watch List: 01/18/15


Humana Inc. - HUM - close: 146.44

Comments:
02/01/15: Healthcare stocks lost their relative strength last week. HUM followed the market lower. Shares are back under the $150 level and the next support level could $140.00.

This week could be volatile. HUM reports earnings on February 4th. Analysts are expecting a profit of $1.15 a share. I am not suggesting new positions at this time.

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 $18.30/21.90

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: 79.34

Comments:
02/01/15: Apple's (AAPL) huge earnings beat helped support many of its part suppliers. NXPI weathered the market's weakness relatively well with a sideways consolidation instead of any significant declines.

NXPI will probably continue to drift sideways until the company reports earnings on February 4th. Results come out after the closing bell. Analysts are forecasting a profit of $1.32 per share.

I am not suggesting new positions ahead of earnings.

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 $ 7.80/10.10

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: 87.53

Comments:
02/01/15: RH had been holding up pretty well until Friday. Then the bottom fell out and RH plunged -5.8% on no news. We were expecting RH to report earnings on the 29th, which would have explained the Friday sell-off. Yet I don't see any earnings announcement. The next earnings report is scheduled for March.

Friday's decline reinforces the six-week bearish trend of lower highs and doesn't bode well for us. Our stop loss is at $84.85. If shares breakdown under the January low of $86.69 I wouldn't be surprised to see RH hit our stop.

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 $12.30/15.00

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


Starbucks - SBUX - close: 87.53

Comments:
02/01/15: SBUX spent last week consolidating at all-time highs. The stock garnered a couple of new price targets in the $90s. Shares still look short-term overbought and I do expect some profit taking. We can look for support in the $83-84 zone. I am not suggesting new positions at this time.

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 $ 6.15/6.35

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: SBUX @ 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: 128.85

Comments:
02/01/15: TM hit a new 52-week high last week. Sadly profit taking on Friday erased those gains. If this pullback continues I'd watch for short-term support near the 50-dma around $126. It is worth noting that last week's decline has created a bearish engulfing candlestick reversal pattern on the weekly chart. We'll have to see if TM confirms it.

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 $ 7.75/11.35

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: 84.98

Comments:
02/01/15: It was a relatively quiet week for WMT. At least it was until Friday. The market's widespread decline fueled a -3.1% drop in WMT on Friday and shares broke down below short-term support in the $85-86 area. The next support level might be the $83 region.

I am not suggesting new positions at this time.

FYI: WMT has earnings coming up on February 19th.

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 $ 2.92/3.05

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




CLOSED Plays


Raytheon Co. - RTN - close: $100.05

Comments:
02/01/15: RTN reported earnings on January 29th. Results were five cents above expectations. Unfortunately management lowered their 2015 guidance significantly below Wall Street's estimates. The stock dropped sharply on Thursday and pierced support at $100 and its 200-dma. Our stop loss was hit at $99.00.

- Suggested Positions -
NOV 25, 2014 - entry price on RTN @ 106.52, option @ 4.85
symbol: RTN160115C115 2016 JAN $115 call - exit $2.28 (-52.9%)

01/29/15 stopped out @ 99.00
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

Chart

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



Watch

Might Be Time To Change Tactics

by James Brown

Click here to email James Brown


New Watch List Entries

None, no new watch list candidates



Active Watch List Candidates

ESRX - Express Scripts

ITB - U.S. Home Construction ETF

LMT - Lockheed Martin

LOW - Lowes Companies

LVLT - Level 3 Communications

MAR - Marriott Intl.


Dropped Watch List Entries

FDX graduated to our active play list



New Watch List Candidates:

No new watch list candidates tonight.

The S&P 500 just produced back to back monthly losses. That hasn't happened since 2012. Stocks could be setting up for another correction lower.


Active Watch List Candidates:



Express Scripts - ESRX - close: 80.71

Comments:
02/01/15: ESRX has been having a hard time lately. The stock is down five out of the last six trading days. Currently our suggested entry point is a close above $86.75. That's unlikely to happen this week. Instead we may want to consider buying calls on ESRX if the stock drops toward support near $75.00 instead. I'm not making any changes to our entry strategy tonight but if this correction continues we may switch to a buy-the-dip strategy.

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


iShares US Home Construction ETF - ITB - close: 25.34

Comments:
02/01/15: The pace of new home sales hit multi-year highs and that may have helped give the ITB a boost last week. This ETF did manage a bounce while the rest of the market was falling. Currently we are still on the sidelines with a suggested entry to buy calls if the ITB closes above $27.00. Odds of that happening this week are pretty slim.

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: 188.37

Comments:
02/01/15: LMT reported earnings on Jan. 27th. Results were $3.01 per share on revenues of $12.53 billion. That's significantly better than the $2.85 a share on revenues of $11.9 billion the street was expecting. The good news stops there. LMT management lowered guidance for 2015. That helped spark some profit taking in the stock.

Currently our entry strategy is a close above $204.00. That's not going to happen this week. We may want to consider buying LMT on a dip if shares see a big enough correction. A drop toward $170 might be attractive. We'll see how LMT performs this week and then evaluate our entry point options.

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


Lowe's Companies - LOW - close: 67.76

Comments:
02/01/15: LOW flirted with a bullish breakout past $70.00 most of the week. Then Friday's market-wide sell-off occurred. LOW was caught up in the wash out. I am suggesting we stay patient. No changes from last week's comments.

Earlier Comments: January 25, 2015:
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)

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

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


Level 3 Communications - LVLT - close: 49.74

Comments:
02/01/15: LVLT managed to resist the market's sell-off last week. Shares are consolidating sideways near major resistance at the $50.00 level. I expect LVLT will continue to churn sideways until the company reports earnings on February 4th. Wall Street expects a profit of $0.26 a share.

Please note I am changing our entry point strategy tonight. I do not want to open positions before LVLT reports earnings. LVLT will report on Wednesday morning. I am adjusting our entry point conditions. Wait until after LVLT reports and wait for LVLT to close in the $50.50-51.50 zone. If this doesn't happen we'll re-evaluate next weekend.

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: see the new entry conditions above
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: 74.50

Comments:
02/01/15: MAR has been churning sideways in the $74-80 zone for weeks. Last week's market decline just sent the stock plunging toward the bottom of this range. If we see MAR close below $74.00 I will remove it as a watch list candidate.

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