Option Investor
Newsletter

Daily Newsletter, Sunday, 2/22/2015

Table of Contents

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

Leaps Trader Commentary

Kicking Greece's Can

by James Brown

Click here to email James Brown

Last week was all about Greece. This little country of eleven million people is the financial headline that won't go away. It was a holiday-shortened week with the U.S. market closed last Monday for President's day. Three of those four days saw the S&P 500 index drift sideways as investors waited for some sort of resolution to the Greek problem. Stocks initially sold off on Friday morning over conflicting headlines regarding negotiations with Greece and a story that the European Central Bank was preparing for Greece to leave the Eurozone. That proved to be false. By Friday afternoon a resolution between the Eurogroup and Greece had delivered a four-month loan extension.

Stocks rallied on the loan-extension headlines and the major U.S. indices raced to new highs. The Dow Industrials, S&P 500, and the small cap Russell 2000 index all ended the week at new record highs. Meanwhile commodities are still underperforming. The U.S. dollar churned sideways but that didn't stop new declines in gold (-2.0%) and silver (-6.2%) last week. Crude oil retreated as well and that weighed on most of the oil and oil service stocks. Meanwhile the U.S. bond market sank, which lifted the yield on the 10-year note to new seven-week highs (up three weeks in a row). The yield closed at 2.1%.

Greek Debt Crisis

It seems like the stock market has been reacting to the twists and turns of the Greek financial tragedy ad nauseam. Sadly, Friday's new accord has merely kicked the can down the road another four months until the end of June. Here's a quick overview of what happened last week.

Early last week there were rumors that Greece was going to ask for a loan extension. This rumor was confirmed on Tuesday. Then on Thursday Germany rejected Greece's proposal for the loan extension. That left things tense on Friday. In the end, Greece's new government proved to be all bark and no bite as they caved in to almost all of the troika's demands.

The EU, ECB, and IMF (a.k.a. the troika) will be supervising Greece over the next four months to make sure the country fulfills its requirements to meet the budget and austerity measures outlined in current bailout. Greek voters are probably shocked since the current government won the recent election on the grounds they would do away with austerity. It's probably not too surprising to see politicians taking the easy road. The best decision is probably leaving the euro, which would be very painful short-term but healthier long-term. Maybe the new Greek government sees staying in the Eurozone as the lesser of two evils. They can still leave the Eurozone down the road if they want to.

Friday's agreement should give the markets some breathing room and move Greece to the backburner for another two or three months. In effect it's short-term bullish for stocks.

Economic Data

Economic data in the U.S. last week was mostly negative. New housing starts saw their December number revised down from 1.089 million to 1.087 million. January's housing starts slipped to an annual pace of 1.065 million. Meanwhile the NAHB housing market index, a confidence survey, inched down from 57 to 56 (on a scale of 0-100).

The wholesale look at inflation in the Producer Price Index declined -0.8% in January following an upwardly revised +0.2% reading in December. Most of January's drop was a reaction to plunging energy prices, namely gasoline. Excluding food and energy we still saw the core PPI decline -0.1%.

Business activity in the U.S. has been slowing down. Industrial production in December was revised lower to -0.3% and January's only showed a +0.2% increase. The New York Empire State fed survey declined from 9.9 to 7.8. The Philadelphia fed survey dropped from 6.3 to 5.2. Economists were expecting the Philly Fed to rise to 9.0. The latest data is the third monthly decline for the Philly fed.

While not an official "economic" report the labor standoff along the West Coast ports continues. This is labor dispute by dock workers who want a raise. Oh by the way, they currently make about $250,000 a year. After nine months the situation intensified last week. The ports account for almost 12.5% of U.S. GDP. Should the dock workers strike it could cost the U.S. economy around $2 billion a day. There has already been significant delays loading and unloading several massive ships worth of cargo and it is starting to impact business.

One potential market mover was the FOMC minutes from the most recent meeting. Inside the minutes we see that the fed governors believe that U.S. economic growth is still showing improvement at a healthy rate. Another interesting tidbit was how the Fed believes that low oil prices and thus low gasoline prices will boost consumer spending, even though we really haven't seen any evidence that's happening yet. The overall tone of the minutes suggested the Federal Reserve is in no rush to raise rates, which should have been bullish for the stock market but stocks just shrugged it off.

Overseas Economic Data

Economic data overseas was mixed. The Bank of Japan decided to leave their interest rates and new QE program unchanged. The country did see its trade deficit drop to the lowest level in over two years with big exports to U.S. and Asia. Meanwhile their manufacturing PMI retreated from 52.2 to 51.5.

Across the Atlantic we saw the Eurozone ZEW economic sentiment survey rise from 45.2 to 52.7, which was better than expected. French manufacturing PMI declined from 49.2 to 47.7. Germany's manufacturing PMI was unchanged at 50.9. The Eurozone manufacturing PMI inched up from 51.0 to 51.1. PMI numbers above 50.0 suggest economic growth.




Major Indices:

The S&P 500 spent a few days consolidating near round-number resistance at 2,100. Then traders bought the dip on Friday morning and it rebounded to a new all-time high. The big cap index is up +0.6% for the week and now up +2.5% for the year. The next level of resistance could be the trend line of higher highs near 2,125.

chart of the S&P 500 index:

The NASDAQ has been showing significant relative strength. This index is up eight days in a row and trading at levels not seen since the year 2000. The 5,000 level is acting like a huge magnet. Odds are good the 5,000 mark could also be significant round-number resistance. I would not be surprised to see a spike toward 5,000 and then some profit taking. Year to date the NASDAQ composite is up +4.6%.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index had a slightly better performance than the S&P 500 with a +0.7% gain for the week. It also closed Friday at new record highs. I'm still estimating potential resistance in the 1,240-1,260 area. Year to date the $RUT is up +2.25%.

chart of the Russell 2000 index



Economic Data & Event Calendar

This week we'll see a lot more data on the residential real estate market. The market will also digest the latest estimates on Eurozone GDP and U.S. GDP. The big event for the week is probably Federal Reserve President Janet Yellen's two-day appearance before the Senate and the House in the Fed's semiannual testimony to congress.

Economic and Event Calendar

- Monday, February 23 -
Existing home sales data

- Tuesday, February 24 -
Eurozone GDP estimate
Case-Shiller 20-city home price index
Fed Chairman Yellen's semiannual testimony before congress (day 1)
Consumer Confidence data
HSBC China manufacturing PMI

- Wednesday, February 25 -
New home sales data
Fed Chairman Yellen's testimony before congress (day 2)

- Thursday, February 26 -
Consumer Price Index (CPI)
Durable Goods Orders

- Friday, February 27 -
U.S. Q4 GDP estimate revision.
Chicago PMI
Pending home sales

Additional Events to be aware of:

Mar. 18th - Federal Reserve policy update
Mar. 18th - Fed Chairman Yellen press conference

Looking Ahead:

Last year we saw economic activity plunge thanks to the uncommonly cold winter. We could see a repeat of that this year. Large parts of the East Coast are already buried under significant amounts of snow. This weekend we're seeing another wide area of the country being hit with new snow storms.

Snow storms in winter? What a surprise, right? However, the weather has been bad enough that Goldman Sachs actually reduced their Q1 GDP estimate from +3.0% to +2.8%. That's still healthy but it acknowledges that the U.S. could see growth slow down in the first quarter.

Crude oil prices will remain a hot topic of debate on Wall Street. Last week saw oil prices decline as inventories rose sharply. There is growing speculation that the U.S. could actually run out of storage in the April-May time frame. When we have so much oil that we can't store it that's definitely going to push prices lower.

There have been a number of headlines regarding the drop in active rigs. That trend continued last week with another 48 rigs taken off line. The number of active oil and gas rigs is now down to 1,310, which is the lowest level since 2009. There is a delay between rig declines and production declines and U.S. production is still growing. We hit a record-breaking 9.28 million barrels a day last week. We probably have another three to six months before U.S. production actually declines and only then will oil have a chance at finding a bottom.

In other news Ukraine remains a geopolitical risk but equity markets just don't seem to care. The recent cease-fire did see fighting slow down but the violence continues. There are new reports that Russia is sending in even more troops, equipment, and support. Leaders from prior Soviet satellite states like Lithuania and Latvia are very concerned. They all see Russia as a major threat and are worried that if Europe doesn't stop Russia in Ukraine what who will stop Russia from invading their countries?

Looking back to the U.S. markets the bearish camp could argue that stocks are overbought. Stocks are supposed to rise and fall on their company's earnings. The U.S. market's major indices are at new highs and yet Wall Street's expectations for 2015 earnings have been plunging. The 2015 forecast for S&P 500 company earnings had dropped from $135 to $120.62. If this trend continues we could see earnings estimates turn negative for the year. Why are stocks rallying if earnings growth estimates are falling?

We are talking about earnings estimates so until Q1 earnings results are actually announced investors could be giving corporate America the benefit of the doubt, even though most corporate guidance during the Q4 earnings season was cautious. Bull markets do climb the wall of worry so it could just be one more brick in the wall.

Overall the resolution between Greece and the EU is short-term bullish, at least for the next two or three months. That could pave the way for the current rally to keep going. Believe it or not we only have about seven weeks before Q1 earnings season begins. The market's path of least resistance over that time frame appears to be higher.

~ James







Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The U.S. stock market appears to be in breakout mode. The S&P 500 has cleared resistance at the 2,100 mark. Now that the Greece debt fiasco has been kicked down the road a few months there should be nothing stopping the rally.

We have new stop losses on AAPL, AET, ANTM, HUM, SBUX, and TM.

Watch list candidate LMT and SWI have graduated to our active play list last week.

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

Watch List Continues To Work

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(February 22, 2015)

The U.S. market appears to be in breakout mode. The S&P 500 index has cleared the 2,100 level and the small cap Russell 2000 is now trading at all-time highs above 1,230. The news that Greece was granted a four-month loan extension is very short-term bullish.

I really wanted to add some new plays tonight but many of the candidates I wanted to add looked short-term overbought or they were still trading beneath resistance.

Fortunately the Watch List is doing its job. Last week was saw both LMT and SWI graduate to our active play list.

Tonight I am adding three new watch list candidates: UA, UNP, and EWG.

I have also updated my radar screen.

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:

MNST, CELG, CR, GD, MA, HAIN, ADBE, ITW, HSIC, PEP, AMAT, MCHP, SLAB, DSW, JBHT, ESRX



Play Updates

The Parade Of New Highs Continues

by James Brown

Click here to email James Brown

Editor's Note:

Watch list candidates LMT and SWI have graduated to our active play list below.


Closed Plays



None. No closed plays this week.




Play Updates


Apple Inc. - AAPL - close: 129.50

Comments:
02/22/15: The rocket ride in AAPL continues. Shares continued to surge and just closed their fifth weekly gain in a row. The stock looks very short-term overbought with an almost non-stop run from $105 to $129.

The $130 level might be round-number resistance. More conservative investors may want to consider taking profits now since you can jump back in later on a correction lower. Tonight I am moving the stop loss to $114.00. You may want to move your stop even higher. Broken resistance at $120.00 should be new support.

No new positions at this time.

FYI: Last week the big story with AAPL was how the company could be working on their own car. Rumor has it that AAPL has a secret location near their headquarters in Cupertino, California, where "Project Titan" is building an Apple-designed car. There has been some skepticism. To actually build a car requires massive investments to build a car factory. Some have suggested AAPL might only design the dashboard and/or engine and then license this technology to someone else. One part of the story that everyone seems to agree on is that AAPL has been hiring engineers away from rivals and offering them a huge signing bonus and salaries up to +60% higher to steal them away and work on this new project. AAPL certainly has the money to splurge on a new project. If rumors are true then we could see an AAPL car by 2020.

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 $17.65/17.75

02/22/15 new stop @ 114.00
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: 114.00
Play Entered on: 12/09/14
Originally listed on the Watch List: 11/02/14


Aetna Inc. - AET - close: 97.92

Comments:
02/22/15: Many of the big healthcare names displayed relative strength last week. AET surged to a new high on Friday and posted its third weekly gain in a row. The stock is nearing what could be psychological resistance at the $100.00 mark. I would not be surprised to see AET tag $100 and then retreat.

The simple 50-dma has risen to $91.90. We will move the stop loss up to $91.40.

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 $ 7.60/8.10

02/22/15 new stop @ 91.40
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: 91.40
Play Entered on: 01/22/15
Originally listed on the Watch List: 12/07/14


Anthem, Inc. - ANTM - close: 144.59

Comments:
02/22/15: ANTM is another healthcare name that broke out to new highs on Friday. Like AET, shares of ANTM are up three weeks in a row. I am not suggesting new positions at current levels.

Tonight I am moving the stop loss to $132.40.

Earlier Comments: January 11, 2015:
Anthem, Inc. is one of the largest healthcare insurance companies in the world. The company recently changed its name from Wellpoint to Anthem. They currently offer healthcare plans to almost 68 million people.

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

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

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

- Suggested Positions -
JAN 16, 2015 - entry price on ANTM @ 133.75, option @ 11.40
symbol: ANTM160115C140 2016 JAN $140 call - current bid/ask $12.50/14.70

02/22/15 new stop @ 132.40
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: 132.40
Play Entered on: 01/16/15
Originally listed on the Watch List: 01/11/15


China Mobile Limited - CHL - close: $68.40

Comments:
02/22/15: Shares of CHL spent the week consolidating sideways. Traders bought the dip on Friday and the stock looks poised to rally again. The $70.00 region is short-term resistance.

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 $4.70/5.10

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: 29.61

Comments:
02/22/15: Two weeks ago we saw shares of CSCO vault to multi-year highs. This past week the stock quietly consolidating gains in a narrow range but with a slightly bullish trend of higher lows and higher highs.

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 $1.93/1.97

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: $104.55

Comments:
02/22/15: DIS is another big cap stock that spent last week consolidating gains. If you look at DIS's weekly chart shares are still stuck at the top of its long-term two year bullish channel. While the trend is up I would expect a pullback.

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 $10.10/10.35

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: 178.50

Comments:
02/22/15: Transportation stocks continued to roll higher. However, the Dow Jones Transportation Average has not yet broken out past its 2014 highs. The group seems to be lagging the broader market. Shares of FDX have delivered a similar performance. The stock is up three weeks in a row but currently has a trend of lower highs.

No 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 $6.55/6.90

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: 156.12

Comments:
02/22/15: Traders continue to buy the dips in HUM. Friday saw the stock bounce from short-term technical support at its rising 10-dma. This is a new all-time high.

Tonight I am raising the stop loss to $142.00.

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

02/22/15 new stop @ 142.00
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: 142.00
Play Entered on: 10/22/14
Originally listed on the Watch List: 10/19/14


iShares US Home Construction ETF - ITB - close: 27.68

Comments:
02/22/15: The ITB managed to extend its gains to four up weeks in a row. That's in spite of news that the NAHB home builder confidence survey ticked lower. I am still concerned that the ITB is overbought and due for a dip. Investors might want to wait for a two or three-day decline before considering new positions. I'm watching the $26.00-26.50 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 $1.25/1.90

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

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


Lockheed Martin - LMT - close: 203.99

Comments:
02/22/15: LMT is a watch list candidate that has graduated to our active play list. We have been waiting for shares to breakout past resistance in the $199-200 zone and close above $201.00. LMT met that entry requirement with Thursday's close at $201.71. Our trade opened on Friday morning with LMT's gap down to $200.86.

After a $7.00 rally last week LMT might be due for a little pullback. Dips near $200 can be use d as a new entry point to buy calls.

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.

- Suggested Positions -
FEB 20, 2015 - entry price on LMT @ 200.86, option @ 6.40
symbol: LMT160115C220 2016 JAN $220 call - current bid/ask $6.00/6.40

02/20/15 trade begins. LMT opens at $200.86
02/19/15 triggered. LMT closed at $201.75, above our trigger of $201.
Option Format: symbol-year-month-day-call-strike

Chart

Current Target: LMT @ TBD
Current Stop loss: 189.00
Play Entered on: 02/20/15
Originally listed on the Watch List: 01/18/15


Lowe's Companies - LOW - close: 73.56

Comments:
02/22/15: The rally in LOW accelerated on Friday and shares ended the week at new all-time highs. I want to warn investors that this week could be volatile. LOW is scheduled to report earnings on Wednesday, February 25th. Results come out before the opening bell. Analysts are expecting a profit of $0.43 a share.

LOW is arguably short-term overbought and the stock is trading near resistance at a trend line of higher highs. I think odds are very good that LOW could see some profit taking on Wednesday. I am not suggesting new positions at this time.

Don't forget that shares of LOW could react to earnings results from its rival, Home Depot (HD), that come out on February 24th.

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 $3.50/3.70

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: 79.06

Comments:
02/22/15: NOW has been a great performer. Shares continued to rally last week. The stock is now up five weeks in a row and trading at record highs. I'm speculating here but the $80.00 level could be round-number resistance and I wouldn't be surprised to see NOW correct lower. Let's way for a pullback before considering new positions.

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 $10.20/11.10

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

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: 84.66

Comments:
02/22/15: Shares of NXPI spent the holiday-shortened week consolidating sideways. The stock underperformed the broader market, especially on Friday. If shares do pullback the $83.00 level is very short-term support followed by potentially stronger support at $80.00 and the rising 50-dma (near $78.60).

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 $11.20/12.10

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: 87.13

Comments:
02/22/15: I am worried that our RH trade is doomed. Shares have been underperforming the broader market for weeks. The stock has a bearish trend of lower highs. RH briefly traded below support at $85.00. The stock almost hit our stop loss at $84.85 on Friday morning.

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 $11.70/12.70

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: 93.51

Comments:
02/22/15: SBUX shares bubbled higher with the stock up every day last week. This rally is starting to look a little long in the tooth (a.k.a. SBUX looks overbought).

More conservative investors may want to consider just taking profits now and then waiting for a correction to jump back in.

Tonight we will raise the stop loss to $87.40. 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 $ 9.30/9.45

02/22/15 new stop @ 87.40
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: 87.40
Play Entered on: 12/15/14
Originally listed on the Watch List: 12/07/14


SolarWinds, Inc. - SWI - close: 51.76

Comments:
02/22/15: SWI is another watch list candidate that has graduated to our play list. The plan was to wait for shares to close above $51.25 and then buy calls the next morning. SWI met that requirement on Feb. 19th with a close at $51.68. Our trade opened on Friday morning at $51.54. I would still consider new positions at current levels.

Earlier Comments: February 15, 2015:
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.

- Suggested Positions -
FEB 20, 2015 - entry price on SWI @ $51.54, option @ 5.20
symbol: SWI160115C55 2016 JAN $55 call - current bid/ask $ 4.50/4.90

02/20/15 trade begins. SWI opens at $51.54
02/19/15 SWI closed at $51.68, above our trigger of $51.25
Option Format: symbol-year-month-day-call-strike

Chart of SWI:

Current Target: SWI @ TBD
Current Stop loss: 46.85
Play Entered on: 02/20/15
Originally listed on the Watch List: 02/15/15


Toyota Motor Corp. - TM - close: 136.90

Comments:
02/22/15: It was a great week for TM investors. The stock soared to new all-time highs thanks to a gain of more than $4.00 on the week. The simple 50-dma has risen to $128.30. Tonight I am raising our stop loss to $127.25.

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 $10.85/12.55

02/22/15 new stop @ 127.25
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: 127.25
Play Entered on: 12/02/14

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


Wal-Mart Stores Inc. - WMT - close: 84.30

Comments:
02/22/15: Shares of WMT were faced with selling pressure thanks to a disappointing earnings forecast. WMT reported earnings on Feb. 19th. Earnings per share hit $1.61, which was seven cents better than expected. Revenues were only up +1.4% to $130.65 billion in the fourth quarter. That missed expectations. WMT did say that same-store sales in the U.S. were up +1.5%, which was better than estimated. Unfortunately, WMT management lowered their guidance for the first quarter and they lowered their full year 2016 guidance by a significant margin. Wall Street was expecting 2016 earnings of $5.20 per share. WMT just guided into the $4.70-5.05 range. The media made a big deal out of WMT's decision to raise wages for about 500,000 employees, at a cost of $1 billion.

I am concerned with WMT's lowered guidance. Low gasoline prices in the U.S. has not translated into stronger consumer spending yet. Cautious traders may want to abandon ship. I am not suggesting new positions. Our stop will remain at $81.90 for now.

Earlier Comments: December 14, 2014:
WMT is the titan of retail. They are the biggest on the planet with 11,000 stores in 27 countries. Their three main segments are Walmart U.S., Walmart International, and Sam's Club (a Costco rival warehouse club).

The stock has been stuck in a $72-80 trading range for most of the last 18 months. That changed with the November breakout past resistance at $80.00. The company reported earnings on November 13th. Earnings were $1.15 a share, which was three cents above expectations. Revenues were up +2.8% and beat Wall Street estimates at $118.08 billion for the quarter. WMT said their same-store sales were up +0.5% in the third quarter, which is the first positive reading in seven quarters. Guidance was mostly inline with estimates although WMT said they expect comparable store sales to be flat to positive in the fourth quarter.

Retail-related stocks initially struggled following Black Friday as initial reports showed consumer traffic and spending came in below estimates. That was due to the changing nature of the retail experience. Instead of standing in line in the cold for door buster deals as in years past this year consumer shopped online and on their mobile phone. Wal-Mart said their online sales during the Black Friday weekend hit a record. Plus, retailers have extended their Black Friday deals form one-day to several days.

The National Retail Federation (NRF) recently issued a press release following the U.S. government's November retail sales number, which was up +0.6% over October and up +3.2% from November 2013. NRF reiterated their forecast for a strong +4.1% growth in consumer spending during the holidays this year.

We like Wal-Mart because it stands to benefit from the crash in crude oil prices. A large chunk of WMT's shoppers are low to middle income citizens. They are more affected by gasoline prices. The sharp drop in gas at the pump leaves a lot more money in their pocket which they will spend on other things. WMT will be a direct beneficiary from this extra cash that consumers have to spend.

Technically shares have started to correct from all-time highs near $88 set in late November. The point & figure chart is bullish and forecasting a long-term target of $98.00. Broken resistance in the $80-81 should be new support. Tonight I am suggesting a buy-the-dip trigger to buy calls when WMT hits $81.50.

UPDATE: 01/11/15 Move the buy-the-dip trigger from $81.50 to $87.50. Move the stop loss to $81.90. Move the option strike from 2016 Jan. $85 call to the 2016 Jan. $90 call.

- Suggested Positions -
JAN 14, 2015 - entry price on WMT @ 87.50, option @ 3.97
symbol: WMT160115C90 2016 JAN $90 call - current bid/ask $ 2.33/2.43

02/19/15 WMT lowers earnings and revenue forecast for Q1 and all of 2016
01/14/15 triggered @ 87.50
01/11/15 Strategy Update Move the buy-the-dip trigger from $81.50 to $87.50. Move the stop loss to $81.90. Move the option strike from 2016 Jan. $85 call to the 2016 Jan. $90 call. Option Format: symbol-year-month-day-call-strike

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




Watch

Athletic Wear, Rails, and Europe

by James Brown

Click here to email James Brown


New Watch List Entries

UA - Under Armour

UNP - Union Pacific

EWG iShares Germany ETF


Active Watch List Candidates

LVLT - Level 3 Communications

TXT - Textron Inc.


Dropped Watch List Entries

LMT and LMT graduated to our active play list.

ASH has been removed as an active watch list candidate.



New Watch List Candidates:

Under Armour, Inc. - UA - close: 75.03

Company Info

We have had UA on our radar screen for a long time. Now we're finally seeing an entry point. UA is in the consumer goods sector. They make shoes and athletic wear. According to the company, "Under Armour (UA), the originator of performance footwear, apparel and equipment, revolutionized how athletes across the world dress. Designed to make all athletes better, the brand's innovative products are sold worldwide to athletes at all levels. The Under Armour Connected Fitnessâ„¢ platform powers the world's largest digital health and fitness community through a suite of applications: UA Record, MapMyFitness, Endomondo and MyFitnessPal."

The athletic shoe and athletic apparel business is very competitive. Nike (NKE) has dominated the space for years. UA is about 10% the size of NKE but it's actively fighting for market share and recently overtook Adidas as the second biggest athletic wear brand inside the United States. Nike had sales of $27.8 billion in 2014. UA is a fraction of that with 2014 sales of $3.08 billion but they saw growth of +32%.

UA has been firing on all cylinders with its earnings results. Most of last year saw the company not only beating Wall Street's estimates but also raising guidance. UA's most recent earnings report was February 4th. The company reported a profit of $0.40 a share with revenues climbing +31% to $895 million, which was above estimates for $849 million. UA's CEO Kevin Plank, in a recent interview, said his company will grow at 20%-plus in 2015. The company's current estimates are $3.76 billion in sales for the year.

Technically shares of UA have recently broken through resistance in the $73.00 area. Now after consolidating sideways the last couple of weeks the stock ended at all-time closing highs. The point & figure chart is bullish and forecasting at $101.00 target.

Wait for UA to close above $75.75 and then buy calls the next morning with a stop loss at $68.25.

Breakout trigger: Wait for UA to close above $75.75
Then buy calls the next morning with a stop at $68.25.

BUY the 2016 Jan $85 call (UA160115c85) current ask $5.40

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

Chart of UA:

Originally listed on the Watch List: 02/22/15


Union Pacific Corp. - UNP - close: 123.66

Company Info

UNP is another stock we have had our eye on for a long time. This company is in the services sector. UNP is the largest railroad in the U.S.

The company describes itself as "Union Pacific Railroad is the principal operating company of Union Pacific Corporation (UNP). One of America's most recognized companies, Union Pacific Railroad connects 23 states in the western two-thirds of the country by rail, providing a critical link in the global supply chain. From 2005-2014, Union Pacific invested more than $31 billion in its network and operations to support America's transportation infrastructure. The railroad's diversified business mix includes Agricultural Products, Automotive, Chemicals, Coal, Industrial Products and Intermodal. Union Pacific serves many of the fastest-growing U.S. population centers, operates from all major West Coast and Gulf Coast ports to eastern gateways, connects with Canada's rail systems and is the only railroad serving all six major Mexico gateways. Union Pacific provides value to its roughly 10,000 customers by delivering products in a safe, reliable, fuel-efficient and environmentally responsible manner."

The company has been showing consistent earnings growth. Their most recent report was January 22nd. UNP reported Q4 earnings of $1.61 a share, which beat expectations and rose +27% from a year ago. Revenues also beat estimates at $6.15 billion. Several Wall Street analysts raised their price target on UNP following these results. Investors also like UNP for its dividend. The company has been paying dividends for 116 years in a row. A couple of weeks ago they just raised their dividend +10%.

If you believe the U.S. economy will continue to grow in 2015 then demand for transportation should also improve. Technically shares of UNP have been consolidating sideways in the $110-124 range for almost three months. Now shares are poised to breakout higher. The point & figure chart is bullish with a $154.00 target.

Tonight I am suggesting investors wait for UNP to close above $125.00 and then buy calls the next morning with a stop loss at $114.75.

Breakout trigger: Wait for UNP to close above $125.00
Then buy calls the next morning with a stop at $114.75.

BUY the 2016 Jan $135 call (UNP160115c135) current ask $5.00

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

Chart of UNP:

Originally listed on the Watch List: 02/22/15


iShares MSCI Germany - EWG - close: 29.50

Company Info

The EWG is an exchange traded fund (ETF) that mimics the MSCI Germany index. This includes small, mid, and large-cap companies.

The U.S. market has enjoyed several years worth of QE programs that helped fuel market gains. Now that the U.S. QE program is over Europe is about to start on their own QE program. The European Central Bank (ECB) will start its quantitative program in March this year. The central bank will purchase about €60 billion a month through September 2016 but they've already announced that they will extend this deadline if they need to.

This is significant. After years of promising to do something about the Eurozone economy and fight the threat of deflation the ECB is finally acting. They might be too late to fend off deflation but investors seem to have hope that Europe can turn things around.

Germany should be a prime beneficiary of this program. The ECB's QE will continue to pressure the euro lower and that makes Germany's exports more competitive. Investors are have already starting betting on an improvement in the Germany market with a significant bounce in the EWG.

Today the EWG has broken through technical resistance at its simple 200-dma. Now it's about to challenge resistance near the $30.00 mark. Tonight I am suggesting investors wait for the EWG to close above $30.00 and then buy calls the next morning with a stop loss at $26.85.

FYI: If you want a broader European ETF I did consider the VGK but about half of its holdings are British and Swiss companies and may not see the same benefit from a weaker euro.

Breakout trigger: Wait for EWG to close above $30.00
Then buy calls the next morning with a stop at $26.85 .

BUY the 2016 Jan $30 call (EWG160115c30) current ask $1.60

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

Chart of EWG:

Originally listed on the Watch List: 02/22/15


Active Watch List Candidates:



Ashland, Inc. - ASH - close: 127.26

Comments:
02/22/15: Shares of ASH spent last week consolidating sideways in the $126-128 range. I still don't want to chase it at current levels. More aggressive traders may want to consider buying a breakout past $128.00 as an alternative entry point.

Tonight I am removing ASH as a candidate. We might bring it back if shares do test support near $120-122 and bounce.

Trade did not open

02/22/15 removed from the watch list

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


Level 3 Communications - LVLT - close: 54.08

Comments:
02/22/15: After consolidating sideways the last few days LVLT ended the week on an up note. The stock looks poised to breakout higher. Tonight we are adjusting our entry point strategy and option strike.

Instead of waiting for a dip to $50.75 we will move the trigger to $54.50. Wait for shares of LVLT to close above $54.50 and then buy calls the next morning with a stop loss at $49.45. We'll bump the option strike up to the 2016 January $60 call.

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.

Trigger: Wait for LVLT to close above $54.50,
then buy calls the next morning with a new stop at $49.45.

BUY the 2016 Jan $60 call (LVLT160115c60) current ask $3.60

02/22/15 Strategy update: Wait for LVLT to close above $54.50, then buy calls the next morning with a new stop at $49.45. Adjust the option strike to 2016 Jan $60 call
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

Chart

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


Textron Inc. - TXT - close: 44.99

Comments:
02/22/15: Traders bought the dip in TXT last week at its rising 10-dma. Shares rebounded to close at multi-year highs. The stock is on track to meet our entry point requirement soon.

Earlier Comments: February 15, 2015:
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 $3.30

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

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