Option Investor
Newsletter

Daily Newsletter, Sunday, 2/8/2015

Table of Contents

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

Leaps Trader Commentary

Oil Rebounds, Stocks Follow It Higher

by James Brown

Click here to email James Brown

Stock market volatility remains elevated. The Dow Jones Industrial Average gained more than 900 points with a huge bounce off its Monday morning low (Feb. 2nd) through Friday's intraday high. Big cap indices like the S&P 500 and the NASDAQ composite also produced significant rebounds. This market-wide bounce lifted the SOX semiconductor index to a +2.8% gain for the week. Transports rose +3.2%. Housing stocks rallied +4.1%. Banking stocks soared +6.8%. Biotechs were the odd group that failed to participate with the biotech index down -2.6% for the week.

Oil and energy stocks were big performers with the oil index surging +5.2% and oil service stocks rocketing +8.3% last week. That's because crude oil prices were racing higher with a +8.8% gain in the last week and a +20% gain in just the last seven days. We have seen the biggest two-week rally in oil prices in the last 17 years (percentage basis). That's impressive when you consider that oil inventories inside the United States surged +6.3 million barrels to 413.1 million. That puts our inventory +15.4% from a year ago levels. U.S. oil inventories are currently setting at an all-time high (since records started in 1982). This news did spark some profit taking in oil midweek but the sell-off didn't last.

Economic Data

We had a lot of economic data to digest last week. The latest reading on factory orders showed a -3.4% drop in December following a -1.7% drop in November. The ISM manufacturing index dipped from 55.1 in December to 53.5 in January. The ISM non-manufacturing (services) index inched higher from 56.5 in December to 56.7 in January. Numbers above 50.0 suggest growth for both indices.

Unfortunately the ISM data is suggesting the U.S. is also seeing deflation accelerate. The ISM manufacturing index is comprised of several components. One of those components is the ISM prices index, which dropped from 38.5 in December to 35.0 in January. This is the third month in a row we've seen prices decline. Deflation now sits at the highest level in the U.S. since October 2008.

We are seeing similar deflation issues in commodity demand. Last week I mentioned the Baltic Dry index hitting multi-year lows. This index measures prices to rent a dry bulk container ship. Today the Baltic Dry index has fallen to new 30-year lows. This is a sign that global demand for commodities is very low and falling. It's hard to see global economic growth when demand for basic goods has crashed.

Chart of the Baltic Dry Index:

Albert Edwards, an analyst at Societe Generale, made headlines last week when he warned that deflation in the U.S. is a significant threat. He believes that eventually deflation will be so serious that the stock market will be "ripped to smithereens".

In other economic news we did see significant growth in the labor market. The nonfarm payrolls (jobs) report came out Friday morning. Economists were looking for +235,000 jobs in January. The Bureau of Labor Statistics said the U.S. added +257,000 new jobs last month. They also revised their 2014 numbers. The revisions for November and December last year added another +147,000 new jobs. November's is now +423K and December's is +329K. That makes the last three months the best three-month job gain in 17 years with an average of +336,000 new jobs. This is significant because it will influence thinking at the Federal Reserve, more on the Fed in a bit.

The minimum wage in 20 states increased on January 1, 2015. This helped boost the average hourly earnings, which jumped +0.5% in January. It's the biggest one-month surge since November 2009. The national unemployment rate inched higher. The government said that an additional 700,000 people were looking for a job last month. Their decision to look for a job adds them back into the workforce. This bumped the unemployment rate from 5.6% to 5.7%. Fears that the collapse in oil prices had fueled significant layoffs in the energy industry did not seem to show up or influence the jobs data.

Overseas Economic Data

Economic data overseas was very mixed. Japan said their manufacturing PMI inched up from 52.1 to 52.2. China's HSBC manufacturing PMI ticked lower from 49.8 to 49.7. The Chinese HSBC services PMI dropped from 53.4 to 51.8. Numbers above 50.0 suggest growth and below 50.0 contraction. The Chinese central bank cuts its reserve requirement ratio for banks from 20.5% to 19.5%, which is technically a form of easing monetary policy but it might just be a seasonal move to provide more cash ahead of the country's annual Lunar New Year holidays.

There has been growing speculation that China could join the global currency war. China's economy is currently growing at the slowest pace in more than 20 years. Its relatively new government is probably desperate to stimulate their economy. They may decide to jump into the global race to devalue their currency (a race the U.S. is currently sitting out). We are less than 40 days into 2015 and we've already seen eight central banks cut interest rates in an effort to fuel economic growth. Why would China not jump on the band wagon?

Looking at Europe the Eurozone said their manufacturing PMI was unchanged at 51.0. Germany's manufacturing PMI slipped from 51.0 to 50.9. France's fell from 49.5 to 49.2. The Eurozone services PMI rose from 52.3 to 52.7. Germany's services PMI improved from 52.3 to 54.0. Numbers below 50.0 suggest economic contraction and above 50 mean growth. Another sign that Europe is struggling with deflation is the latest Eurozone PPI data, which saw prices fall -1.0% month over month. This was worse than expected and followed a -0.3% drop the prior month. The year-over-year reading slipped from -1.6% to -2.7%.

Greece

One of the major stories last week was Greece and how its new anti-austerity government is butting heads with all of its European counterparts (i.e. creditors). Last Tuesday German Chancellor Angela Merkel warned everyone that negotiations with Greece would likely take months. Of course that could be a challenge given the major deadlines Greece faces in February. On Wednesday the European Central Bank (ECB) dealt a blow to Greece by declaring Greek government debt as unacceptable collateral for loans from the ECB. On Thursday German Finance Minister Wolfgang Schaeuble met with Greek Finance Minister Yanis Varoufakis but the meeting failed to produce any significant results. It was so contentious that Varoufakis said the two could not even agree to disagree.

The situation intensified on Friday when the EU gave Greece a new deadline of February 16th to apply for new bailout loans. The current bailout agreement expires after February 28th. After the 28th the country will be bankrupt and quickly run out of cash (you could argue they are already bankrupt). Last week also saw Standard & Poor's downgrade Greece's credit rating to B- (junk status) and they kept the country on watch for potential downgrades in the future. The S&P analysts are worried that Greece could face bank runs and capital controls.

Greece is a small country of about 11 million people that is about 1% of the Eurozone's GDP. Currently their debt is so large the country will never be able to pay it back (more than 250 billion euros). The new Greek government was voted into office to end the Troika-mandated austerity and renegotiate their debt structure. So it seems unlikely they would cave into Europe's demand. Meanwhile the Troika (EU, ECB, and IMF), led by the Germans, doesn't want to throw more money at Greece but they don't want Greece to leave the Eurozone either. If Greece refuses to play the Troika's game then the country will be in default. The Greeks will either leave or be kicked out of the Eurozone.

Leaving the Eurozone is probably the only real solution for Greece. That way they could re-launch their own currency, devalue their debts, make their exports more competitive, etc. However, such a move would probably be extremely rough on the country and its citizens. If Greece leaves the Eurozone it also paves the way for other troubled countries to leave the Eurozone and then the unity of the financial region would be seriously destabilized.

Greece and its upcoming February deadlines will remain front page news for the global markets for the foreseeable future.




Major Indices:

The S&P 500 index delivered a +3.0% bounce last week. The rally struggled near its short-term resistance in the 2,060-2,065 range. The recent seesaw pattern would suggest it's time for stocks to retreat again.

If this rally continues the 2,080-through-2,100 zone is also overhead resistance. Meanwhile support appears to be the 1,980-1,990 zone. A breakdown below 1,980 would probably signal a drop toward 1,900. Year to date the S&P 500 is down less than -1%.

chart of the S&P 500 index:

The NASDAQ also rebounded higher and posted a +2.3% gain for the week. It too struggled with resistance near its recent highs. The 4,800 area remains overhead resistance while the 4,500 region is still support.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index delivered the biggest gains among the major indices with a +3.4% advance last week. The breakout above short-term resistance at 1,200 is encouraging. Now the $RUT is only about 15 points away from a new all-time high. If the $RUT can breakout to new highs it would be very bullish for the broader market.

chart of the Russell 2000 index



Economic Data & Event Calendar

The pace of economic data slows down this week. There are no market-moving reports to watch. The Q4 earnings season is also slowing down. The events this week may be political. The Eurozone finance ministers will meet on February 11th and the main topic is probably Greece and if the Eurozone wants to kick them out. On February 12th is the EU leader summit. They will most likely concentrate on terrorism following the recent attack in Paris. There will probably be a lot of talk about Ukraine as well.

Economic and Event Calendar

- Monday, February 09 -
(nothing significant)

- Tuesday, February 10 -
Wholesale inventory data

- Wednesday, February 11 -
Eurozone Finance Minister meeting

- Thursday, February 12 -
U.S. retail sales for January
Business inventory data
EU leader summit

- Friday, February 13 -
Eurozone GDP report
Import/export prices
University of Michigan Consumer Sentiment

Additional Events to be aware of:

Feb. 24th - Fed Chairman Yellen's semiannual testimony before congress.

Looking Ahead:

Earnings season is winding down. More than 70% of the S&P 500 companies have reported their results. About 65% have beaten Wall Street's earnings estimates. Unfortunately the majority have issued bearish or cautious guidance. As many pundits predicted the U.S. dollar, currently at multi-year highs, has seriously hurt profitability for a lot of companies.

Geopolitical Concerns

Geopolitical issues could once again become the market's focus. We already discussed Greece, which will be a major story this year. There also seems to be a renewed focus on ISIS/ISIL. When ISIS burned a Jordanian pilot alive this past week it seemed to rekindle the civilized world's disgust for these terrorists. The country of Jordan has launched a number of airstrikes at ISIS targets in response. The White House just released their 2015 National Security Strategy and in it the Obama administration confessed that the U.S. probably faces an unending war against ISIS and its affiliates.

The sad news is that situation, with ISIS, is unlikely to change much. Until there is a serious offensive to take them out, just airstrikes will not succeed. Michael Morell, formerly the deputy director of the CIA said it would take 100,000 ground troops to take care of ISIS but no one is willing to make that commitment.

Meanwhile the focus on geopolitics might turn towards Ukraine this week. We just heard on Friday that German Chancellor Merkel and French President Hollande rushed to Moscow to talk with Russian President Putin about the situation in Eastern Ukraine. The media was calling it a last-ditch effort to form a peace plan to stop the fighting. As of today it would appear that Merkel and Hollande's efforts did not accomplish anything.

There is speculation that if Greece does get kicked out or leaves the Eurozone they might find a friend in Putin. Greece would love someone with deep pockets to help them through the transition in leaving the euro. Russian would love an ally right in the middle of the Mediterranean.

Investors are Nervous

Investors are nervous and looking for safety. The global economy is slowing down. Europe is facing deflation. China is at its slowest growth in decades. Russia remains belligerent. Greece is on the verge of leaving the Eurozone. U.S. stocks are getting whipsawed back and forth. Right now investors want protection.

Bond yields across the major economies are at multi-year lows. Many in Europe are trading at all-time, historic lows. Countries like Germany actually have negative yields on their short-term bonds. Investors are so desperate for safety they are piling into big corporate debt too. This has driven some bond yields for big corporations in Europe into negative territory.

Last week Nestle's corporate bonds saw a negative yield. This has never happened before. Investors are so scared they're willing to pay a fee (negative yield) just to park their money somewhere safe. Other big European or multi-national companies are seeing a similar event with their bond yields near zero. Oddly enough there is this strange divergence. The German stock market is near all-time highs. With last week's bounce the U.S. stock market is not that far away from all-time highs.

Federal Reserve and Raising Rates

Another big story to follow over the next several weeks will be the U.S. Federal Reserve. Friday's better than expected jobs number and the wave of upward revisions will give the Fed more ammunition to raise rates sooner rather than later. Currently the Fed has promised to be "patient" and many market pundits are translating that word into at least two more Fed meetings before we raise rates.

So what happens when the Fed changes that language? Previously expectations were for the Fed to begin raising interest rates in the September time frame or the fourth quarter of 2015. Now there is suddenly speculation that the Fed might raise rates as soon as June. Atlanta Fed President Dennis Lockhart has already voiced his opinion suggesting the Fed could start raising rates midyear. Market watchers already know that once the Fed starts hiking rates the stock market usually dips. Historically stocks plunged about -5% on the first hike. The researchers at the Stock Trader's Almanac noted that the month the Fed starts raising rates the stock market has never closed in positive territory that month. Three months after the first rate hike stocks are normally down about -5%. Hopefully the Fed can communicate clearly that they are raising rates because the economy is so strong. That might be a challenging message to get across if the rest of the world is slowing down.

Stocks definitely look a lot better today than the did a week ago thanks to the widespread bounce. However, it's just a bounce back toward resistance. I wouldn't get too excited yet. I am still suggesting caution. Now if we see the major averages breakout then investor sentiment would change significantly and we might see money chasing after new highs.

~ James







Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The U.S. market continues to see volatile swings in both directions. The S&P 500 index appears to be ricocheting between support and resistance. Now the market has closed at the top of the range, near resistance. Does it breakout or does it reverse lower?

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

AAL hit our stop loss.

We want to exit our CHKP trade on Monday morning (Feb. 9th).

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

Corporate Guidance Has Not Spooked Investors (Yet)

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(February 08, 2015)

The U.S. market delivered a nice bounce last week. Unfortunately, it's just a bounce. The S&P 500 is still stuck in this 1,980-2,065 trading range. There is even more resistance overhead in the 2,085-2,100 zone.

Bears can argue that the market momentum has stalled and stocks are about to crash. Bulls can argue that stocks are merely digesting big gains from last year and the tidal wave of Q4 earnings results that were announced over the last few weeks.

I'm relatively surprised that stocks are holding up so well considering the overwhelming number of companies that issued bearish or cautious guidance. Plus, we had the better than expected jobs report on Friday that has fueled new expectations that the Federal Reserve might raise rates sooner than previously expected.

Overall I'm still neutral on the market short-term. Stocks need to prove themselves again, especially after all the volatile up and down swings this year. I am encouraging by the recent strength in the small cap Russell 2000 index. The $RUT is actually close to breaking out to new all-time highs, which would be a bullish sentiment indicator for the market.

Last week we saw LOW graduate from our watch list to our active play list. Tonight I'm adding two new candidates to our watch list (ASH, NOW).

Stay cautious when it comes to launching new positions. No new trades tonight.

I have updated my radar screen below.

Radar Screen:
Here is a list of stocks on my radar screen. These have potential to be LEAPS trades down the road if the right entry point presents itself. In no particular order:

TOL, TJX, DLPH, CSX, UNP, AMBA, DVA, FSLR, GD, HAIN, WWAV, DD, WSM



Play Updates

Disney Soars On Strong Earnings

by James Brown

Click here to email James Brown

Editor's Note:

LOW graduated from our watch list to our play list.

We want to exit our CHKP trade on Monday morning.


Closed Plays


AAL hit our stop loss



Play Updates


Apple Inc. - AAPL - close: 118.93

Comments:
02/08/15: AAPL made headlines last week with its plans to build a $2 billion data center in Arizona. This will be their new command center to monitor the company's global networks. Meanwhile one analyst raised their price target on AAPL to $140.

Shares continued to rally last week but upward momentum definitely slowed down. AAPL is struggling with round-number resistance at the $120.00 level.

No new positions at this time.

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 $11.85/12.10

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: 94.54

Comments:
02/08/15: AET reported Q4 earnings on Feb. 3rd. The results of $1.22 a share were in-line with estimates. Revenues rose +12.5% to $14.77 billion, which was above expectations. Management raised their 2015 guidance. Shares surged on the bullish guidance. Multiple analyst firms have raised their price targets on AET following the earnings report.

The stock tagged a new all-time high on Wednesday and Thursday before profit taking shaved off -2% on Friday. More conservative investors may want to raise their stop loss.

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 $ 6.20/6.45

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: 135.69

Comments:
02/08/15: ANTM underperformed the market last week. The stock did manage a gain for the week but not by much. The big story for ANTM was news of a massive cyber attack on the company. Midweek the story surfaced that hackers had broken into a customer database with nearly 80 million ANTM customers. What makes this so alarming is that names, birthdays, social security numbers, street addresses, email addresses, and employment information was in the database. ANTM isn't sure how much data was actually stolen. Security officials believe that China or at least hackers located in China were behind the attack.

Shares of ANTM spent the week consolidating sideways while holding just above the $135.00 level. If shares do see a pullback the $130.00 region should be support. I am not suggesting new positions at this time.

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 $10.00/11.80

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: 76.72

Comments:
02/08/15: CHKP continues to underperform the market. The stock is down three weeks in a row. Last week saw its oversold bounce stall at resistance near $78 and its 50-dma. CHKP looks poised to accelerate lower.

Tonight I am suggesting an immediate exit on Monday morning.

- 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 $5.20/5.40
Stop loss @ 74.75 if you're trading the 2016s.

02/08/15 prepare to exit on Monday morning
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

Chart

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: $67.69

Comments:
02/08/15: CHL surged to multi-year highs on Thursday, almost tagging the $70 level. Profit taking on Friday produced a -2.5% decline. The $65-67 area could be short-term support. Below that I'd look for support near $63 and then $60.

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 $4.80/5.10

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: 27.24

Comments:
02/08/15: CSCO dipped to $25.92 on Monday. That was awfully close to our stop loss at $25.75. The market's widespread bounce lifted CSCO to $27.66 by Friday but gains faded into the close. CSCO will likely churn sideways the next few days until they report earnings. The company is scheduled to announce earnings on Wednesday, Feb. 11th, after the closing bell. Analysts are looking for a profit of $0.51 a share. Of course the key will be management's guidance for 2015.

I am not suggesting new positions at this time. Thursday morning could be volatile as investors react to the earnings news.

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 $1.03/1.06

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: $102.02

Comments:
02/08/15: It was a huge week for DIS who accounted for a significant chunk of the Dow Industrial Average's rally. The stock soared from Monday's intraday low near $90.00 to an all-time high above $102.

The stock produced a big move following significantly better than expected earnings numbers on Feb. 3rd. Wall Street was expecting a profit of $1.07 a share on revenues of $12.88 billion. DIS crushed the estimates with a profit of $1.27 a share on revenues of $13.39 billion. Multiple firms have raised their price target on DIS following these outstanding results.

Technical traders will find it interesting that the rally in DIS stalled exactly at the top of its long-term bullish channel (see chart below). Odds are good that DIS shares could been several days consolidating gains.

More conservative investors may want to consider just exiting now to lock in a potential profit and then reconsider a new entry point once shares correct lower.

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 $8.95/9.20

02/08/15 DIS has soared to new highs following strong earnings results
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

Chart

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: 173.25

Comments:
02/08/15: Our FDX trade is still alive by a very small margin. Shares dipped to $168.03 last Monday before bouncing. Our stop loss is at $168.00. I'm still worried about FDX. The bounce might be stalling under the $175.00 level and its simple 50-dma.

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 $5.65/5.95

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

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: 147.74

Comments:
02/08/15: It was a somewhat volatile week for shares of HUM with a bounce from Monday's low of $143.44 to Thursday's high of $153.91. HUM reported earnings on February 4th. They missed Wall Street's estimate by six cents with a profit of $1.09 a share. Revenues were up +21% to $12.3 billion. Guidance was essentially in-line with estimates.

The stock could be seeing some post-earnings profit taking. If shares close below technical support at the 50-dma (currently $145) then it might signal a drop toward the January low around $137.50. 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 $18.20/22.40

02/04/15 HUM reports earnings and misses estimates by six cents
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


Lowe's Companies - LOW - close: 71.90

Comments:
02/08/15: LOW has graduated to our play list. We had LOW on our watch list with a suggested entry point to wait for shares to close above $70.75 and then buy calls the next morning. LOW delivered a very strong week. The stock dipped to support near $66.00 on Monday and then quickly reversed into rally mode. Shares produced a five-day rally to new highs.

Our trade began on February 6th. While our trade is open I'm not sure we want to chase a five-day bounce. Tonight I am suggesting readers wait for a dip near $70.00 or better yet a bounce from $70.00 as our next entry point. However, investors should keep in mind that LOW reports earnings on February 25th. LOW's main rival, Home Depot (HD), reports earnings on February 24th. This stock could be volatile as the market reacts to these results.

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.

- Suggested Positions -
FEB 06, 2015 - entry price on LOW @ 71.53, option @ 3.45
symbol: LOW160115C80 2016 JAN $80 call - current bid/ask $3.20/3.30

02/06/15 trade begins. LOW opens at $71.53
02/05/15 LOW closed at $71.47, above our trigger of $70.75
Option Format: symbol-year-month-day-call-strike

Chart

Current Target: LOW @ TBD
Current Stop loss: 64.90
Play Entered on: 02/06/15
Originally listed on the Watch List: 01/25/15


NXP Semiconductors - NXPI - close: 82.29

Comments:
02/08/15: Investors were happy with NXPI's earnings results and the stock soared +5.1% on Friday. The company reported earnings on February 5th. Analysts were expecting $1.32 a share on revenues of $1.51 billion. NXPI beat expectations with a profit of $1.35 as revenues rose +18.9% to $1.54 billion. Multiple analyst firms raised their price targets on NXPI following these results. These are new all-time highs for the stock. NXPI appears to be breaking out from its three-week trading range. I'd like to see a close above $84.00 before considering new bullish positions.

Tonight I am raising the stop loss to $71.90.

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 $10.10/11.10

02/08/15 new stop @ 71.90
02/05/15 NXPI beat estimates on both the top and bottom line
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: 71.90
Play Entered on: 01/12/15
Originally listed on the Watch List: 01/04/15


Restoration Hardware - RH - close: 86.74

Comments:
02/08/15: Our RH trade appears to be in trouble. The stock was very volatile as investors reacted to earnings guidance. On Thursday morning RH issued a press release with its preliminary net revenues and guidance for its fourth quarter.

RH said its revenues for the November-January time frame hit $583 million. That's a +24% increase from a year ago and an acceleration from the +22% surge in the third quarter. Management guided Q4 2014 earnings from $0.99-1.01 to $1.00-1.01. Wall Street's estimate is $1.01.

RH's Chairman and CEO Gary Friedman was (naturally) bullish on the company saying, "While still in the early stages of building RH into the leading luxury home brand, we see a clear path toward $4 billion to $5 billion in North American sales, mid-teens operating margin, and significant free cash flow."

Shares of RH initially rallied to new two-week highs on this press release. Then just as quickly the stock reversed hard. The sell-off on Thursday erased the prior three days worth of gains.

The stock's performance last week looks pretty bearish. Odds are growing that RH will breakdown below support in the $85-86 area. Our stop loss remains at $84.85. I am not suggesting new positions.

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 $11.80/12.90

02/05/15 RH releases preliminary revenue numbers and updates guidance
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: 89.00

Comments:
02/08/15: SBUX managed another gain for the week and tagged another new record high. However, shares are struggling with round-number resistance at $90.00. I'm not suggesting new positions. SBUX could see a correction back toward the $82-83 area.

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 $ 6.75/6.90

01/25/15 new stop loss @ 79.65
01/23/15 SBUX soars on strong earnings results
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: 129.57

Comments:
02/08/15: On February 4th TM reported its Q3 results. Analysts were expecting a profit of $3.16 per ADR share. TM delivered $3.33 a share. Revenues were up almost +9% to nearly $63 billion, which was significantly above expectations. Strong demand for SUVs and a weak yen helped drive sales.

Management raised their net income forecast for their March quarter to $2.13 trillion yen ($18.1 billion), up from their prior forecast of $2.0 trillion yen. TM also raised their sales forecast from 26.5 trillion yen to 27 trillion yen.

The stock shot higher on these results and guidance but unfortunately the rally didn't see any follow through. It would appear that TM has not forgotten its 2013 highs near $135, which is overhead resistance.

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 $ 8.55/ 9.70

02/04/15 TM delivers better than expected earnings results and raises guidance
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: 87.33

Comments:
02/08/15: Traders bought the dip in WMT near $84.00 on Monday and the stock rallied to a five-day winning streak. I am not suggesting new positions at this time. WMT does have a four-week trend of lower highs. Plus the company is due to report earnings on February 19th. Shares could be volatile following its results. I suggest waiting until after WMT reports before considering new positions.

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 $ 3.65/3.80

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


American Airlines Group - AAL - close: 48.15

Comments:
02/08/15: The rally in crude oil helped fuel some additional profit taking in the airline stocks. AAL hit our stop loss at $47.75 on February 2nd. Currently the stock looks poised to breakdown below support in the $45-46 area. If that occurs the next support area might be $40.00.

- Suggested Positions -
DEC 30, 2014 - entry price on AAL @ 53.00, option @ 6.10
symbol: AAL160115C60 2016 JAN $60 call - exit $4.10 (-32.7%)

02/02/15 stopped out
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

Chart

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



Watch

Chemicals and Cloud Computing

by James Brown

Click here to email James Brown


New Watch List Entries

ASH - Ashland, Inc.

NOW - ServiceNow Inc.


Active Watch List Candidates

ITB - U.S. Home Construction ETF

LMT - Lockheed Martin

LVLT - Level 3 Communications


Dropped Watch List Entries

LOW graduated to our active play list.

We are removing ESRX and MAR as watch list candidate.



New Watch List Candidates:

Ashland, Inc. - ASH - close: 125.83

Company Info

ASH is in the basic materials sector. They are a chemical company. According to their marketing material, "Ashland Inc. (ASH) is a global leader in providing specialty chemical solutions to customers in a wide range of consumer and industrial markets, including architectural coatings, automotive, construction, energy, food and beverage, personal care and pharmaceutical. Through our three commercial units - Ashland Specialty Ingredients, Ashland Performance Materials and Valvoline - we use good chemistry to make great things happen for customers in more than 100 countries."

ASH is currently restructuring its business into just three operating segments and hopes to achieve annual savings of up to $200 million. The company has also reported strong sales growth for its specialty ingredients business. This may be why investors were so forgiving with the company's latest earnings report.

ASH reported on January 26th. Earnings were $1.46 a share, which was better than the $1.42 estimate. Yet revenues were down -2.9% to $1.39 billion, below expectations. The stock didn't move much on this report. Yet shares were definitely moving this past week. ASH has broken out past resistance in the $122 area and rallied to new all-time highs.

The relative strength is encouraging and the point & figure chart is very bullish with a long-term target of $189.00. I am not suggesting new positions today. We want to wait for a pullback. I'm suggesting a buy-the-dip trigger at $122.25 with a stop loss at $115.45.

Buy-the-dip trigger: $122.25
With a stop loss at $115.45

BUY the 2016 Jan $135 call (ASH160115c135) current ask $7.00

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

Chart of ASH:

Originally listed on the Watch List: 02/08/15


ServiceNow, Inc. - NOW - close: 74.94

Company Info

Shares of NOW are trading at all-time highs thanks to significant earnings growth. The company expects to see growth of more than +40% in 2015.

NOW describes itself as "ServiceNow is changing the way people work. With a service-orientation toward the activities, tasks and processes that make up day-to-day work life, we help the modern enterprise operate faster and be more scalable than ever before. Customers use our service model to define, structure and automate the flow of work, removing dependencies on email and spreadsheets to transform the delivery and management of services for the enterprise. ServiceNow provides service management for every department in the enterprise including IT, human resources, facilities, field service and more. We deliver a 'lights-out, light-speed' experience through our enterprise cloud – built to manage everything as a service."

This company has been consistently guiding their earnings forecast higher. They've done it at least the last four earnings reports in a row. Their most recent earnings report was January 28th. NOW reported their Q4 results of $0.03 a share compared to a loss of 2 cents a year ago. Analysts were expecting a profit of 2 cents a share. Q4 revenues soared +58% to $198 million, which was above expectations.

Some of the highlights from their fourth quarter include billings up +62% year over year and up +34% quarter over quarter. Deferred revenues were up +20% for the quarter. NOW added 211 net new customers, bumping their total to 2,725. Their customer renewal rate was 97%.

NOW said their 2014 revenues soared +61% compared to 2013. Their backlog at the end of 2014 hit $1.4 billion. That's a +57% jump from a year ago. NOW's President and CEO Frank Slootman said, "We finished 2014 with strong metrics across the board, maintaining consistently high year-over-year growth rates. In addition to a growing list of new customers that now includes more than 25% of the Global 2000, we continue to see existing customers expand their relationship with us, resulting in the highest quarterly upsell rate since our IPO." NOW's CFO Michael Scarpelli said, "Within the Global 2000, annualized contract value per customer has increased 40% year-over-year. These expanding contracts have helped us grow our combined backlog and deferred revenue 57% year-over-year."

NOW offered bullish guidance. They expected Q1 revenues to grow +50% in the $207-212 million range compared to Wall Street's estimates of $202.4 million. NOW's 2015 guidance is forecasting revenue growth in the +41% to +47% range in the $960-1,000 million zone versus analysts' estimates of $948 million.

These strong numbers and the consistent growth makes them a popular candidate among Wall Street analysts. After NOW's most recent earnings report several analyst firms raised their price target on NOW's stock.

Technically shares have just recently broken out through major resistance near $70.00. The point & figure chart is bullish and forecasting a long-term target of $97.00. The last few days have seen shares consolidating sideways in the $70-75 range. Tonight I am suggesting investors wait for NOW to close above $75.50 and then buy calls the next morning with a stop loss at $68.90. More nimble traders could wait and cross your fingers for a dip near support at $70.00 as an alternative entry point.

Breakout trigger: Wait for a close above $75.50
Buy calls the next day with a stop at $68.90.

BUY the 2016 Jan $80 call (NOW160115c80) current ask $9.70

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

Chart of NOW:

Originally listed on the Watch List: 02/08/15


Active Watch List Candidates:



Express Scripts - ESRX - close: 81.84

Comments:
02/08/15: ESRX managed a gain for the week but the action is bearish. Shares have been failing at resistance near its 50-dma for the last three days in a row. Our trade has not opened yet. Tonight I am removing ESRX as a candidate.

Trade did not open.

02/08/15 removed from the watch list, suggested entry was a close above $86.75

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


iShares US Home Construction ETF - ITB - close: 26.66

Comments:
02/08/15: The ITB displayed significant strength last week with a surge toward its recent highs. Considering the current rally we are going to keep the ITB on our watch list.

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: 195.24

Comments:
02/08/15: LMT is looking healthier than it was a week ago. Traders bought the dip at LMT's rising 100-dma. The stock rebounded and produced a five-day winning streak.

Wait for a close above $201.00.

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

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: 52.42

Comments:
02/08/15: LVLT reported earnings last week and spiked higher on its results. Analysts were expecting a profit of $0.29 a share on revenues of $1.96 billion. LVLT delivered $0.35 a share as revenues increase +19.5% to $1.91 billion. The stock reacted with a surge to multi-year highs.

We were expecting a rally but didn't want to buy too big of a spike. Last week I adjusted our entry point strategy to wait until after LVLT reported earnings and only launch positions if shares close in the $50.50-51.50 zone. That has not happened yet.

Tonight I'm adjusting the entry strategy again. Broken resistance near $50.00 should be new support. Let's wait for a dip to support. Buy calls on a dip at $50.75 and we'll move the stop loss to $46.25.

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.

Buy calls on a dip at $50.75 with a stop at $46.25

BUY the 2016 Jan $55 call (LVLT160115c55)

02/08/15 Adjust entry point strategy: Buy calls on a dip at $50.75 with a stop loss at $46.25. Option Format: symbol-year-month-day-call-strike

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


Marriott Intl. - MAR - close: 74.22

Comments:
02/08/15: I am giving up on our MAR trade. The stock has fallen toward three-month lows. Bulls could argue that MAR is still holding above its 100-dma and the long-term trend of higher lows is still in place. I'm concerned with MAR's performance this past week with a failed rally at resistance and its relative weakness. Tonight we are removing MAR as a candidate.

Trade did not open.

02/08/15 removed from the watch list, suggested entry was a close above $80.25

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