Option Investor
Newsletter

Daily Newsletter, Sunday, 2/15/2015

Table of Contents

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

Leaps Trader Commentary

Optimism Fuels A Round Of New Highs

by James Brown

Click here to email James Brown

A wave of optimism helped lift stocks to new highs last week. Hopes for a deal to solve the Greece situation, news of a cease-fire agreement in Ukraine, and improving economic data in Europe all contributed to the stock market's widespread gains. All of the major U.S. indices delivered gains last week with many breaking out to new highs. The NASDAQ composite hit levels not seen since the year 2000. The S&P 500 and the small cap Russell 2000 indices both closed at all-time highs.

Semiconductor stocks continue to show relative strength with the SOX index surging +4.95% for the week. Both biotech stocks and the oil-related stock indices added +3.0%. The U.S. dollar remains near 11-year highs but that didn't stop commodities from bouncing. Crude oil added +1.1% for the week to close at $52.65 a barrel. Brent crude is at $61.41 a barrel. Silver surged +3.7% to end the week at $17.32 an ounce. Gold slipped -0.5% to $1,227.90 an ounce. The yield on the U.S. 10-year note ended at 2.05% while the yield on a German 10-year bond closed at 0.31%.

Crude oil prices remain a hot topic. Oil production in the U.S. is poised to see a sharp slowdown with the number of active rigs still plunging. According to Baker Hughes the number of active rigs in the U.S. dropped -98 to 1,358. Active oil and gas rigs have fallen 572 from their recent highs. That's a -29.7% drop and the fastest decline on record.

The big drop in active rigs is adding to expectations for a bottom in oil prices. OPEC added to the mix with their announcement last week that they expect oil demand to rise +430,000 barrels a day to a total of 29.21 million barrels a day. Yet we are not seeing demand rise that much in the U.S. At least if we are seeing demand rise it's not outpacing supply. Our supplies are soaring. U.S. crude oil inventories rose another 4.9 million barrels to an 80-year high of 417.9 million barrels. The U.S. is quickly running out of places to storage oil and once storage is full the price of oil could see another plunge.

A recent CNBC story discussed the price of oil with Tom Kloza, chief oil analyst at Oil Price Information Service. Kloza suggested that WTI crude oil could drop toward the $30 a barrel range by the second quarter of 2015 but he is expecting a bottom before the first half of 2015 is over.

Economic Data

We did not have a lot of U.S. economic data last week. What we did get was disappointing. The retail sales numbers are not adding up. U.S. GDP is supposed to be improving but that could be in trouble since about 70% of GDP is consumer spending. For months we have been expecting consumers to spend their savings at the gas pump elsewhere but we are just not seeing any evidence of that. The January retail sales number dropped -0.8% following a -0.9% decline in December. However, it is important to note that most of that drop was likely due to lower gas prices at the pump. If you exclude motor vehicle sales, gasoline stations, and building materials, then the core retail sales number was up +0.2%.

Economists had been expecting a decline in the headline number but -0.9% was twice as bad as expected. Meanwhile the core retail sales number was barely positive after the fourth quarter of 2014 marked the strongest consumer spending growth since 2006. Another disappointment was the consumer sentiment data. The University of Michigan Consumer Sentiment survey released its preliminary February results. Analysts were expecting the survey to be unchanged from January's 11-year high of 98.1 Unfortunately the survey showed a drop to 93.6. It was the biggest miss versus the estimate on record.

It's possible that consumer sentiment was reacting to a bounce in gasoline prices, which have seen a 30-cent rebound per gallon from the recent lows. AAA reports the national average is back up to $2.25. That's still down from $3.33 a year ago but it's up sharply from a month ago. Inside the survey the current conditions component dropped from 109.3 to 103.1 and the expectations component declined from 91.0 to 87.5. Attitudes among consumers definitely deflated from the recent highs.

There was hope that spending might pick up around Valentine's Day, especially with the holiday on Monday, many workers have a three-day weekend. The National Retail Federation is estimating that Valentine's Day related spending could rise +9.2% from a year ago to $18.9 billion.

Overseas Economic Data

Overseas data was also quiet but what we did see what improvement. Japan said their machine tool orders surged +20% from a year ago. Meanwhile in Europe we see Germany reporting their Q4 GDP rose +0.7%. That's significantly better than consensus estimates of just +0.3% growth. It's also up significantly from Germany's Q3 growth of just +0.1%. This big improvement in Germany helped the Eurozone Q4 GDP hit +0.3%, which was above the +0.2% expectation.

The region is still struggling with deflation. Sweden is the newest country on a growing list that has cut their interest rates. Sweden's central bank surprised the market by lowering their repurchase rate from 0.0% to -0.1%. They announced a QE program of 10 billion krone. This move is designed to help the country fight inflation and devalue their currency. It's just one more shot in the currency war as everyone tries to devalue their currency to avoid deflation.

Greek Debt Crisis

Of course Greece was the main topic last week. The new Greek government is trying to keep their voters happy at home with fiery rhetoric about how they are going to fight austerity and roll back the rules imposed by the troika. At the same time they're trying to negotiate with their creditors and asking for more money, more time, and a better deal.

There was a rumor last week that the European Commission was going to give Greece a six-month extension on its deadlines but that story was quickly squashed by multiple sources. The Greece-EU talks last week failed to achieve any results. Meanwhile people have been withdrawing money out of Greek banks at an alarming rate. We're talking billions and billions of euros are racing out of Greek banks because people are afraid that if negotiations fail then Greece may impose capital controls.

Greece has a February 16th deadline to apply for a bailout extension because some Eurozone countries need to approve any additional bailout by their parliaments. The current bailout agreement expires on February 28th. The equity markets seem pretty sanguine about some sort of deal being reached, which is somewhat surprising. Greece currently has a debt of about €323 billion. About €240 billion of that is money from the various bailout programs over the last few years. The European Central Bank owns about 6% of Greece's total debt. The IMF has about 10%. The largest creditor is the Eurozone with about 60% of Greece's €320 billion debt.

Right now there is no way Greece can pay off its debt. At €320 billion that's 174% of Greek GDP. After years of austerity their economy is in tatters. Unemployment is sky high. They can't even pay the interest on their current debt. It would be much better for Greece to leave the Eurozone and just default. However, Germany wants to keep Greece in the Eurozone, which would keep the euro weak and that benefits Germany's export-driven economy. Besides, joining the Eurozone was supposed to be a permanent, no going back sort of deal. If Greece is allowed to exit then Spain and Italy might decide it is better for their countries to exit as well since their debts are so high. Unfortunately the Eurozone is sort of damned if they do and damned if they don't with Greece. If they keep Greece in the Eurozone by adjusting the terms and conditions on its debt then struggling countries like Portugal, Italy, Ireland, and Spain (the rest of the PIIGS countries) will also want to renegotiate their debt details.

Right now negotiations between Greece and the Eurogroup are scheduled to continue on Monday, February 16th. The Eurogroup chief Jeroen Dijsselbloem said he was "very pessimistic" about any serious deal being achieved. At the same time, as of Sunday, Greek is still optimistic that a deal will get done. Stocks investors seem to be betting on a deal as well. The Europe 600 stock index hit seven-year highs this past week. The German DAX index traded above 11,000 for the first time ever just a couple of days ago.




Major Indices:

The big cap S&P 500 index has produced a nice rally from its early February lows near 1,980. Last week saw a +2.0% gain and a breakout past its December highs. That means the index is now up +1.8% for the year and closed at new all-time highs.

Technically you could argue that the S&P 500 is short-term overbought and due for a dip. You could also argue that the six-point close above its 2014 high is not much of a breakout - at least not yet. The 2,100 level is potential round-number resistance. I'd probably put the party hats away until we see a strong close above the 2,100 level.

Depending on where you want to draw your support lines the S&P 500 might have short-term support at 2,080, 2,070, or 2,065. The S&P 500 also has a trend line of higher highs that traders should be aware of.

chart of the S&P 500 index:

Weekly chart of the S&P 500 index

The NASDAQ composite delivered the strongest performance among the major U.S. indices. It rallied +3.1% last week, which boosted its 2015 gain to +3.3%. The breakout past resistance in the 4,800 area is very bullish, especially after weeks of consolidating sideways. Suddenly everyone is talking about the NASDAQ's all-time high, which was set back in March 2000 around the 5,130 level. That's only another +5% move higher from current levels. Of course the NASDAQ has to rally through the 5,000 level first and that could be tough round-number, psychological resistance. On a short-term basis you could argue the NASDAQ is oversold with a +6% bounce from its early February low.

chart of the NASDAQ Composite index:

Weekly chart of the NASDAQ Composite index

The small cap Russell 2000 index ($RUT) rallied +1.47% last week. The rise past its December highs near 1,220 leaves the index at a new all-time high. It's probably too early to call this a true breakout. A reversal here would feel like a bearish double top. I do find the strength in the $RUT encouraging. After underperforming the big cap indices last year the $RUT could be poised to outperform. It's hard to pick where overhead resistance could be but I suspect somewhere in the 1,240-1,260 area.

chart of the Russell 2000 index

Weekly chart of the Russell 2000 index



Economic Data & Event Calendar

The U.S. markets are closed on Monday for President's day. Meanwhile the pace of economic data picks up in the U.S. We'll see two regional Fed surveys with New York and Philadelphia reporting. The PPI will give us another look at inflation on a wholesale level. The FOMC minutes could influence market trading as investors try to determine when the Fed might start raising rates.

Economic and Event Calendar

- Monday, February 16 -
U.S. markets are closed (President's day)
Eurogroup & Greece negotiations.

- Tuesday, February 17 -
New York Empire State manufacturing survey
NAHB housing market index

- Wednesday, February 18 -
Housing starts and building permits
FOMC minutes
Producer Price Index (PPI)
Industrial Production

- Thursday, February 19 -
Philadelphia Fed survey

- Friday, February 20 -
(nothing significant)

Additional Events to be aware of:

Feb. 24th - Fed Chairman Yellen's semiannual testimony before congress. Mar. 18th - Federal Reserve policy update
Mar. 18th - Fed Chairman Yellen press conference

Looking Ahead:

Greece wasn't the only big story last week. Ukraine was making headlines. Heads of state from Germany and France helped negotiate a new cease-fire deal between Ukraine and Russia. These talks took 16 hours to finally agree on terms. This new cease-fire was supposed to start on midnight Saturday night (February 15th). This sparked fierce fighting over the last 48 hours as both the Ukraine forces and rebel forces tried to gain new ground before the cease-fire started since whatever they controlled by Saturday night would determine where the dividing line would be drawn.

Sadly as of Sunday the fighting continued. However, reports suggest that the intensity of the conflict definitely subsided. The question now is if this cease-fire will hold. Essentially it's almost the same deal proposed back in September, which did not work. There has been speculation in the West that the fighting will not stop until Russia has a land bridge to its new annexed region of Crimea. Currently the rebels do not control enough territory to reach from Russia to Crimea. It would appear that both sides are using the cease-fire to bolster their positions.

Cautious Analysts

The U.S. market is breaking out to new highs so you might expect a lot of optimism on Wall Street. Oddly enough the last few days have seen more cautious comments coming from market pundits. An analyst at Credit Suisse just lowered their midyear S&P 500 price target from 2,250 to 2,100. They also lowered their yearend target to 2,150. Their concern was earnings growth expectations and geopolitical risk.

Another firm, this time UBS, said the market was risky and they were suggesting clients reduce exposure to stocks due to geopolitical and global economic risks. In the case of putting your money where your mouth is the widely followed Appaloosa Management hedge fund, guided by David Tepper, significantly reduced their exposure to stocks from $6.74 billion down to $4 billion. They completely exited their positions in Apple Inc. (AAPL), Alibaba (BABA), Citigroup (C), Facebook (FB), Ford (F), and Halliburton (HAL). That's in addition to selling all their shares of the SPY S&P 500 ETF.

Market

The U.S. market's trend the last two weeks has been bullish. It's hard to deny the bullish breakout in the NASDAQ. The new highs in the S&P 500 and the Russell 2000 need to see some follow through or we're going to worry about a potential bearish double top. Bears could argue that corporate guidance during the recent Q4 earnings season was way too cautious. They have a point. Guidance was pretty anemic. Yet stock prices have continued to climb. There appears to be some sort of disconnect between what corporations are telling us and what investors believe. Or it's possible investors just don't care. The U.S. is still the best house in a bad neighborhood.

Tonight my concern remains Greece. The next two weeks will be filled with brinksmanship between the new Greek anti-austerity government and its creditors in Europe. If they fail to come to some sort of deal then Greece could be forced to leave the Eurozone. That could shatter market confidence even through Greece is such a small part of the Eurozone. The deadline to watch will be February 28th. If we see a deal or some sort of extension then stocks could breathe a sigh of relief and continue higher.

On a technical note the current bull market is about to hit its sixth year anniversary. We are just about three weeks away from its March 9th anniversary. The average bull market lasts about 165 weeks. This bull market is about 309 weeks old.

~ James







Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The market rally continued last week. The NASDAQ led the way with a rally to new 14-year highs. Meanwhile both the big cap S&P 500 and the small cap Russell 2000 closed at all-time highs.

We have new stop losses on AAPL, AET, ANTM, CHL, DIS, NXPI, and TM.

Watch list candidate NOW and ITB have graduated to our active play list last week.

It was our plan to exit the 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

Epic Game Of Brinksmanship

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(February 15, 2015)

The widespread rally in the U.S. market is very encouraging, especially considering the relatively cautious earnings guidance we heard during the Q4 earnings season.

Investors seem optimistic that Greece will be able to work out a deal with its creditors in Europe. Plus the news of a potential cease-fire in Ukraine doesn't hurt. The challenge the market faces now is what happens when the fighting continues in Ukraine should this second cease-fire attempt fail? What happens if Greece does not make a deal with the Eurozone? Greece is facing some serious deadlines in the next two weeks. Stocks could be volatile while Eurogroup bankers face off against the anti-austerity government in Greece. It could be an epic game of brinksmanship.

Naturally with the stock market at record highs it's easy to be bullish. I'm partially tempted to launch a bullish play on the S&P 500 with the SPY ETF or the small cap Russell 2000 index with the IWM ETF. However, I'm not adding any new trades tonight.

Last week we saw both NOW and ITB graduate to our active play list. We've replaced those two with two new watch list candidates tonight SWI and TXT .

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:

ADBE, ITW, IP, TJX, GLW, MA, HAIN, UTX, WSM, DRI, UA, PANW, FEYE, HBI,



Play Updates

Seeing Lots Of New Highs

by James Brown

Click here to email James Brown

Editor's Note:

ITB and NOW have graduated from our watch list to our active play list below.


Closed Plays


We closed our CHKP trade on Monday, Feb. 9th.



Play Updates


Apple Inc. - AAPL - close: 127.08

Comments:
02/15/15: It was a great week for AAPL bulls. The stock rallied $8.00 and broke out past resistance near the $120 level. The stock has a market cap of $740 billion, the first U.S. company to hit a market cap that high. The stock received a couple of price target upgrades last week (to $135 and $150). It was interesting to learn that David Tepper's Appaloosa Management hedge fund had completely sold their AAPL stake of more than one million shares in the fourth quarter.

Shares of AAPL are looking overbought with a four-week rally. Tonight I am raising the stop loss to $109.50. More conservative traders may want to use a stop closer to $115.00 or even higher. I expect broken resistance at $120.00 to be new support.

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 $16.35/16.50

02/15/15 new stop @ 109.50
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: 109.50
Play Entered on: 12/09/14
Originally listed on the Watch List: 11/02/14


Aetna Inc. - AET - close: 96.12

Comments:
02/15/15: AET did post a gain for the week but the rally was less than two points. Shares failed to breakout past their early February high. The trend is up but the $100.00 level is potential round-number resistance.

Tonight we will raise the stop loss to $88.50.

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 $ 6.85/7.30

02/15/15 new stop @ 88.50
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: 88.50
Play Entered on: 01/22/15
Originally listed on the Watch List: 12/07/14


Anthem, Inc. - ANTM - close: 141.05

Comments:
02/15/15: ANTM saw a little profit taking on Friday but shares still gained more than $5 for the week. Until ANTM can breakout past its late January high near $144 I'm going to worry about a potential bearish double top.

Tonight we'll adjust the stop loss to $129.50.

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 $11.65/14.60

02/15/15 new stop @ 129.50
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: 129.50
Play Entered on: 01/16/15
Originally listed on the Watch List: 01/11/15


China Mobile Limited - CHL - close: $68.70

Comments:
02/15/15: It was another volatile week for shares of CHL. Fortunately the stock did end the week with a gain. CHL is now up five out of the last six weeks and poised to hit new highs.

Tonight we'll adjust the stop loss up to $61.75.

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 $5.20/5.60

02/15/15 new stop @ 61.75
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: 61.75
Play Entered on: 11/11/14
Originally listed on the Watch List: 11/09/14


Cisco Systems - CSCO - close: 29.43

Comments:
02/15/15: Investors applauded CSCO's earnings results and shares jumped to multi-year highs. Results came out on February 11th, after the closing bell. Analysts were expecting $0.51 a share on revenues of $11.8 billion. CSCO delivered $0.53 a share with revenues up +7.0% to $11.94 billion. Management raised the company's dividend by two cents to $0.21 a share. Multiple analysts raised their price target on CSCO following these results. Shares gapped open higher on Thursday morning and the stock ended the week at levels not seen since late 2007.

I am not suggesting new positions.

Earlier Comments: December 21, 2014:
It seems that 2014 delivered a resurgence for old guard, big cap, technology names. CSCO is one of them and the stock has shined this year with a +23.8% gain versus the +14% gain in the NASDAQ Composite.

The company continues to struggle with strong earnings growth and management has been cautious with their guidance. It seems that investors don't care. The stock is sporting a 2.8% dividend yield. That's not bad when the 10-year U.S. bond has a yield near 2.1%.

Analysts are starting to speculate that 2015 could be a good year for earnings since 2014 was so tough (that makes for easier comparisons). The recent strength in shares of CSCO have produced a buy signal on the point & figure chart that's forecasting at $43 price target. The stock has garnered a number of bullish analyst calls since their earnings report in mid November.

The $26.00 level was key resistance for CSCO. Normally broken resistance turns into new support and the stock found support there during the market's recent pullback. Right now CSCO is poised to breakout past $28.00. Tonight I am suggesting we wait for CSCO to close above $28.15 and then buy calls the next morning with a stop loss at $25.75.

- Suggested Positions -
DEC 23, 2014 - entry price on CSCO @ 28.22, option @ 1.40
symbol: CSCO160115C30 2016 JAN $30 call - current bid/ask $1.91/1.94

02/11/15 CSCO reports better than expected earnings and revenues, raises dividend
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: $104.17

Comments:
02/15/15: DIS took advantage of the market's widespread rally and shares climbed to new all-time highs by the end of the week. I will point out to readers that DIS is still trading pretty close to the top of its long-term bullish channel. I would not chase it here.

We will adjust the stop loss to $89.75. More conservative traders may want to move their stop closer to $95.00. If DIS corrects it could fill the gap with a dip toward $94.

Strategy idea: Investors may want to consider the idea of exiting now to lock in gains and then wait for DIS to correct back toward support and jump in again.

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 $10.20/10.35

02/15/15 new stop @ 89.75
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

Current Target: DIS @ TBD
Current Stop loss: 89.75
Play Entered on: 12/01/14
Originally listed on the Watch List: 11/09/14



Fedex Corp. - FDX - close: 176.47

Comments:
02/15/15: FDX rallied through short-term resistance near $175.00 and its 50-dma this past week. While last week's move was encouraging I'm still cautious when it comes to new positions. The transportation average has been lagging the major indices. Investors could be indecisive due to all the volatility in oil prices.

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 $6.20/6.60

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: 152.67

Comments:
02/15/15: It was a good week for HUM. The stock bounced off its rising 40-dma and surged toward its January highs near $155. More conservative investors may want to raise their stop again. 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 $21.50/25.10

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


iShares US Home Construction ETF - ITB - close: 27.51

Comments:
02/15/15: ITB is a watch list candidate that has graduated to our active play list. After the sharp sell-off in mid January I was concerned that this trade would not get off the ground. The ITB has produced a very consistent three-week rally to breakout to new multi-year highs. An improving labor market and slowly improving U.S. economy should be bullish for the real estate market. The national average for 30-year fixed mortgage rates is 3.67%, which is still extremely low and should be a tailwind for the housing market.

Our ITB trade is open but after a three-week surge you might want to consider waiting for a dip and then buying the next bounce. I'm watching the $26.50 area for short-term support.

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.

- Suggested Positions -
FEB 11, 2015 - entry price on ITB @ 27.09, option @ 1.70
symbol: ITB160115C30 2016 JAN $30 call - current bid/ask $1.10/2.10

02/11/15 trade begins. ITB opens at $27.09
02/10/15 ITB closes at $27.10, above our trigger at $27.00
Option Format: symbol-year-month-day-call-strike

Chart

Current Target: ITB @ TBD
Current Stop loss: 23.95
Play Entered on: 02/11/15
Originally listed on the Watch List: 01/11/15


Lowe's Companies - LOW - close: 72.05

Comments:
02/15/15: The action in LOW last week was disappointing. Shares eked out a very small gain for the week (about 15 cents). This lack of participation in the market's very widespread rally could be a warning signal. I'm not suggesting new positions at this time.

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 $3.10/3.30

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

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


ServiceNow, Inc. - NOW - close: 77.55

Comments:
02/15/15: NOW is another watch list candidate that has graduated to our active play list. We added NOW last weekend with a suggested entry point to wait for shares to close above $75.50. The stock closed at $75.95 on Thursday. Our trade opened on Friday morning at $76.25. NOW has been showing significant relative strength and the stock is up four weeks in a row. Readers may want to consider waiting for a dip near $75.00 as an alternative entry point.

Earlier Comments: February 8, 2015:
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.

- Suggested Positions -
FEB 13, 2015 - entry price on NOW @ 76.25, option @ 10.00
symbol: NOW160115C80 2016 JAN $80 call - current bid/ask $9.00/10.40

02/13/15 trade begins. NOW opens @ $76.25
02/12/15 NOW closed at $75.95, above our $75.50 trigger
Option Format: symbol-year-month-day-call-strike

Chart of NOW:

Current Target: NOW @ TBD
Current Stop loss: 68.90
Play Entered on: 02/13/15
Originally listed on the Watch List: 02/08/15


NXP Semiconductors - NXPI - close: 84.79

Comments:
02/15/15: Semiconductor stocks were some of the market's best performers last week. NXPI rallied to new all-time highs and above short-term resistance in the $83.00 area.

The breakout can be used as a new bullish entry point. Tonight we'll raise the stop loss to $74.00.

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 $11.40/12.20

02/15/15 new stop @ 74.00
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: 74.00
Play Entered on: 01/12/15
Originally listed on the Watch List: 01/04/15


Restoration Hardware - RH - close: 86.77

Comments:
02/15/15: Caution! Our RH trade is in trouble. The bounce from support near $85.00 just failed at the $90.00 level. Shares have been underperforming the market these last two days in a row (plus the prior several weeks). I'm concerned that RH is about to breakdown under $85.00 and hit our stop 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 $11.80/12.80

02/15/15 RH looks poised to breakdown and hit our stop soon
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: 91.58

Comments:
02/15/15: The rally in SBUX continued with shares hitting new all-time highs. The stock does look overbought here with the surge from $79 to $92 in the last few weeks. 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 $ 8.05/8.30

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: 132.49

Comments:
02/15/15: TM rebounded from Monday's low and shares are up four days in a row. The stock is still trading near resistance in the $132-135 area. Thus I am not suggesting new positions at this time.

We are raising the stop loss to $124.50. Investors may want to keep an eye on headlines regarding the West Coast port slowdown. Dock workers are pushing for a raise and the LA port is severely backed up. This could start to hurt imports like Toyota if it's not cleared up soon.

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 $ 9.50/10.20

02/15/15 new stop @ 124.50
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: 124.50
Play Entered on: 12/02/14

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


Wal-Mart Stores Inc. - WMT - close: 85.81

Comments:
02/15/15: WMT garnered some analyst comments last week. Some were bullish suggesting the stock could rally toward $95 while other analysts were more cautious and worried that the dollar strength might hurt WMT's overseas sales. We will find out how WMT did last quarter as the company is scheduled to report on February 19th. Results come out before the opening bell. Wall Street expects a profit of $1.54 a share.

I am suggesting caution here. This past week we just got the U.S. retail sales data, which saw the headline number decline -0.9%. That was worse than expected but a lot of that was due to falling prices at gasoline stations. The core retail sales number was up +0.2% in January but that's still very slow. Gasoline prices have already bounced about 30 cents from six-year lows. This is going to hurt WMT's low-income consumers.

I am not suggesting new positions at this time.

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 $ 3.05/3.35

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


Checkpoint Software Tech. - CHKP - close: 80.33

Comments:
02/15/15: CHKP has not been cooperating for weeks. Shares have been underperforming. Last weekend we decided to abandon ship and exit on Monday, Feb. 9th. So naturally what did CHKP do? It gapped down on Monday (@ $76.30) and then produced a four-day rally back toward its highs.

- 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 - exit $5.00 (+4.1%)
Stop loss @ 74.75 if you're trading the 2016s.

02/09/15 planned exit at the open
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



Watch

IT Management & Industrial Goods

by James Brown

Click here to email James Brown


New Watch List Entries

SWI - SolarWinds

TXT - Textron Inc.


Active Watch List Candidates

ASH - Ashland, Inc.

LMT - Lockheed Martin

LVLT - Level 3 Communications


Dropped Watch List Entries

NOW and ITB graduated to our active play list.



New Watch List Candidates:

SolarWinds, Inc. - SWI - close: 50.55

Company Info

SWI is part of the technology sector. With a name like SolarWinds you'd think the company might be part of the solar energy business but instead SWI makes IT management software.

According to the company, "SolarWinds (NYSE: SWI) provides powerful and affordable IT management software to customers worldwide from Fortune 500® enterprises to small businesses. In all of our market areas, our approach is consistent. We focus exclusively on IT Pros and strive to eliminate the complexity that they have been forced to accept from traditional enterprise software vendors. SolarWinds delivers on this commitment with unexpected simplicity through products that are easy to find, buy, use and maintain while providing the power to address any IT management problem on any scale. Our solutions are rooted in our deep connection to our user base, which interacts in our thwack® online community to solve problems, share technology and best practices, and directly participate in our product development process."

Last year the company had a pretty good track record on earnings. The last four quarterly reports in a row they have beaten Wall Street's estimates on both the top and bottom line. In their Q2 and Q3 reports SWI raised guidance on both the top and bottom line as well. Their most recent report was January 29th where SWI delivered earnings of $0.51 a share as revenues increased +22% to $118.4 million.

The stock has been correcting from its early December highs but it looks like that correction is over. Shares saw a bullish reversal in early February and now SWI is starting to break through resistance.

Tonight I am suggesting we wait for SWI to close above $51.25 and then buy calls the next morning with a stop loss at $46.85.

Breakout trigger: Wait for SWI to close above $51.25
Then buy calls the next morning with a stop at $46.85.

BUY the 2016 Jan $55 call (SWI160115C55) current ask $4.50

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

Chart of SWI:

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


Textron Inc. - TXT - close: 44.68

Company Info

TXT is in the industrial goods sector. They deal mostly in the aerospace industry. According to the company, "Textron Inc. is a multi-industry company that leverages its global network of aircraft, defense, industrial and finance businesses to provide customers with innovative solutions and services. Textron is known around the world for its powerful brands such as Bell Helicopter, Cessna, Beechcraft, Hawker, Jacobsen, Kautex, Lycoming, E-Z-GO, Greenlee, and Textron Systems."

The earnings picture last year was mixed. Better than expected results and bullish guidance helped power a big rally last October. Their most recent earnings report was January 28th. TXT's earnings of $0.76 a share were up +26% from a year ago but 1 cent worse than Wall Street estimates. Revenues were up +16.8% to $4.1 billion, also below estimates.

It's interesting how TXT missed Wall Street's earnings estimates on both the top and bottom line and management lowered their guidance for all of 2015. Yet the stock did not sell off. Normally an earnings miss or weak guidance would spark significant selling. Instead investors just calmly bought the dip and now TXT is breaking out to new multi-year highs.

If bad news like that can't shake the stock lower then the path of least resistance is definitely higher. The last couple of months look like a significant consolidation pattern and now TXT has produced a bullish breakout past resistance in the $44.00-44.50 zone. The point & figure chart is bullish and forecasting a long-term target at $67.00.

Tonight I am suggesting small bullish positions if TXT can close above $45.10. Wait for shares to close above this level and then buy calls the next morning.

Breakout trigger: Wait for TXT to close above $45.10
Then buy calls the next morning with a stop at $39.90.

BUY the 2016 Jan $50 call (TXT160115C50) current ask $3.05

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

Chart of SLAB:

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


Active Watch List Candidates:



Ashland, Inc. - ASH - close: 127.58

Comments:
02/15/15: Hmm... our buy-the-dip strategy may not work. ASH slipped to $122.68 on Tuesday before bouncing. Shares continued to bounce the rest of the week and now ASH is trading at all-time highs.

I didn't want to chase it a week ago so I don't want to chase it now. Let's see where ASH is trading a week from now and then we will re-evaluate our entry point strategy. For now our suggested trigger is still $122.25.

Earlier Comments: February 8, 2015:
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)

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

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


Lockheed Martin - LMT - close: 196.95

Comments:
02/15/15: LMT has bounced back toward resistance in the $198-199 area. If this rally continues we should see LMT crack $200 soon. Our suggested entry point is to wait for LMT to close above $201.00 and then buy calls the next morning.

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: 53.49

Comments:
02/15/15: LVLT posted another weekly gain. The stock is now up four out of the last five weeks. Last week's performance was interesting in that shares struggled to make it past the early February high. Plus LVLT was underperforming the market on Friday. Considering Friday's relative weakness and LVLT's inability to breakout to new highs I am keeping our entry point at $50.75 for now.

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